14536611 indian telecom industry industry analytics

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Report on Telecom ServiceProvider Industry

Report prepared byGroup VI Section B

As a fulfillment of the course in

Industry Analytics

Post Graduate Program 2008-2010

Industry Report on TelecomService Provider Industry



Report prepared byGroup VI Section B

Members

1. Ajay Goyal

2. Geetanjali Ghosh

3. Natasha Jain

4. Ritesh Bhansali

5. Satam Roy

As a fulfillment of the course inIndustry Analytics


DECLARATION



This is to declare that this report on “The Telecommunications Service

Sector” has been made for the partial fulfillment of the course: Industry

Analytics in Term – III of PGP (Batch 2008-2010) by the group members.

The work was undertaken by the following members. The members express

that the contents of the report have been done jointly and the views

contained therein have been discussed and deliberated in full. The group

takes responsibility of the contents and agrees to go through the review

process.

MEMBERS SIGNATURE

1. Ajay Goyal 08PG077

2. Geetanjali Ghosh 08PG089

3. Natasha Jain 08PG101

4. Ritesh Bhansali 08PG113

5. Satam Roy 08PG125




ACKNOWLEDGEMENT

At the successful completion of our project, we would like to express my

sincere gratitude to all the people without whose support this project

would not be completed.

At the onset, I would like to thank my institute “Alliance Business School”

for giving us the opportunity to undergo this research project.

We would also like to acknowledge the constant help and encouragement

of our project guide Prof. Samik Shome, who has given his valuable

suggestions and expert guidance and support.

We would also like to thank all those who have directly or indirectly

helped us in the preparation of this report.



EXECUTIVE SUMMARY

This report examines the emergence of innovation and value creation for enhancing

customers' experience, as a result of increasing competition in the Indian telecom

industry during the late 1990s and early 2000s. The report provides a detailed account of

the evolution of the Indian telecom industry.

It traces various developments in the industry before, during and after the liberalization of

the Indian telecom sector. It also provides information about the increasing popularity of

cellular services which led to the emergence of several private telecom operators like

Bharti Tele Ventures, Hutchison Telecom, Idea Cellular Ltd, Reliance Telecom Ltd, etc.

Due to the huge market potential even public sector undertakings like BSNL and MTNLhave also begun offering cellular services apart from basic wire line services.

The fast track growth of the Indian telecom industry has made it a key contributor to

India’s progress. India adopted a phased approach for reforming the telecom sector right

from the beginning. Privatization was gradually introduced, first in value-added services,

followed by cellular and basic services. An independent regulatory body, Telecom

Regulatory Authority of India (TRAI), was established to deal with competition in a

balanced manner. This gradual and thoughtful reform process in India has favoured

industry growth. Today, there are more than 225 million telecom subscribers in India.

Every month, 6-7 million new subscribers are added. Upcoming services such as 3G and

WiMax will help to further augment the growth rate.

Furthermore, the Indian economy is slated to sustain its 7-9 per cent growth rate in the

near future. This is supported by the political stability that the country is experiencing

currently. India’s demographic outlook makes it one of the largest markets in the world. A

conducive business environment is also created by a favourable regulatory regime. There

exists enormous business potential for telecom companies on account of the country’s

low tele-density, which is close to 19 per cent presently. The Indian telecom industry is

growing at the fastest pace in the world and India is projected to be the second largest

telecom market globally by 2010.



LIST OF TABLES

Table 3.1: Telecom Statistics of the world

Table 3.2: Outgoing Minutes of the world

Table 3.3: International Comparison of tele-density

Table 4.1 Companies and No. of Circles covered

Table: 4.2 Number of broadband subscribers

Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million)

Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector

Table: 4.4 Indian Telecommunications at a glance

Table: 7.1 FDI Policy for different telecom sectors

Table: 7.2 Actual Inflow (Year Wise) of FDI in Telecom Sector from April 2000 to

August 2008

Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise (from January 2000

to August 2008)

Table: 7.4 Actual Inflow of FDI in Telecom Sector -Sector-wise as on August, 2008

Table: 7.5 Capital Market data

Table 9.1: Key Ratios of Bharti Airtel Ltd.

Table 9.2: Key Ratios of Reliance Communications Ltd.

Table 9.3: Key Ratios of Vodafone Essar Ltd.

Table 9.4: Key Ratios of BSNL

Table 9.5: Key Ratios of Idea Cellular Ltd.

Table 9.6: Key Ratios of Aircel Cellular Ltd.

Table 9.7: Key Ratios of MTNL

Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007)

Table 9.9: Key Ratios of HFCL Infotel Ltd.

Table 9.10: Key Ratios of Shyam Telecom Ltd



Table: 9.11 Inter-Company comparison of top 5 companies

Table: 9.12 Inter-Company comparison of bottom 5 companies

LIST OF FIGURES

Figure: 3.1 Growth in fixed lines, mobile cellular subscribers, estimated Internet users

and subscribers to mobile broadband networks, in billions, 1995-2007

Figure: 3.2 Broadband subscribers by region, 2007

Figure: 3.3 Fixed and mobile broadband evolution in developed and developing

countries

Figure: 4.1 Wireline Subscriber

Figure: 4.2 Wireless Subscriber

Figure: 4.3 Internet Subscriber

Figure: 4.4 Broadband Subscriber

Figure: 4.5 Growth of Tele-density

Figure: 4.6 Market share of wireless service providers (as on 31st March 2008)

Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA)

Figure: 4.8 PSU Operators Subscriber Base

Figure: 4.9 Private Operators Subscribers Base

Figure: 4.10 Share of pubic and private sector IPS (in lakhs)

Figure: 4.11 Set top boxes in CAS notified area

Figure: 6.1 Year wise cellular tariff and no. of subscribers

Figure: 7.1 Employment Potential of Indian telecom industry

Figure: 9.1 Market Share of Telecom Companies as on 31

st

Jan’09



TABLE OF CONTENTS

CHAPTER PAGE NO.

1. Introduction1

2. Review of Literature4

3. Global Overview12

4. Indian Overview25

5. Industry Structure

45

6. Government Policy Analysis53



7. Economic Factors and Its Implications65

8. Analytical Framework 83

9. Company Analysis98

10. Trend and forecast134

11. Bibliography147

Chapter 1



INTRODUCTIO

N



1.1 HISTORY OF TELECOMMUNICATION

INDUSTRY

The history of telecommunication industry started with the first public demonstration of Morse’s electric telegraph, Baltimore to Washington in 1844. In 1876 Alexander Graham

Bell filed his patent application and the first telephone patent was issued to him on 7 th of

March.

In 1913, telegraph was popular way of communication. AT&T commits to dispose its

telegraph stocks and agreed to provide long distance connection to independence

telephone system.

In 1956, the final judgment limited the Bell System to Common Carrier Communications

and Government projects but preserving the long-standing relationships between the

manufacturing, researches and operating arms of the Bell System. In this judgment

AT&T retained bell laboratories and Western Electric Company. This final judgment

brought to a close the justice departments seven –year-old antitrust suit against AT&T

and Western Electric which sought separation of the Bell Systems Manufacturing from its

operating and research functions. AT&T was still controlling the telecommunication

industry.

In 1982 , AT&T was requested to divestiture its stock ownership in Western Electric;

termination of exclusive relationship between AT&T and Western Electric; divestiture by

Western Electric of its fifty percent interest in Bell Telephone Laboratories, AT&T ‘stelecommunication research and development facility, is a jointly owned subsidiary in

which AT&T and Western Electric each own 50% of the stock; separation of telephone

manufacturing from provision of telephone service and the compulsory licensing of

patents owned by AT&T on a non-discriminatory basis.

It was telecommunication act of 1996 that true competition was allowed. The act of 1996

opened the market to all competitors. AT&T being the first telecommunication company

paved the road for the telecommunication industry as well as set the policy and standards

for others to follow.



Beginning of telecommunication in India

1851First operational land lines were laid by the government near Calcutta

1881Telephone services introduced in India

1883Merger with postal system

1923Formation of Indian radio Telegraph Company

1932 Merger of ETC and IRT into Indian Radio and Cable Communication

Company

1947 Nationalization of all foreign telecommunication companies to form the posts, telephone and telegraph, a monopoly run by the government’s ministry of

communications

1985Department of telecommunication established , an exclusive provider of

domestic and long-distance services that would be its own regulator

1986 Conversion of dot into two wholly government – owned companies the

VSNL for international telecommunication and MTNL for services in

metropolitan areas

1997Telecom regulatory authority created



Telecommunication is important not only because of its role in bringing the benefits of

communication to every corner of India but also in serving the new policy objectives of

improving the global competitiveness of the Indian economy and stimulating and

attracting foreign direct investment.

Indian Telecom industry is one of the fastest growing telecom markets in the world. Intelecom industry, service providers are the main drivers; whereas equipment

manufacturers are witnessing growth and decline in successive quarters as sales is

dependent on order undertaken by the companies.

Chapter 2

REVIEW OF

LITERATURE



REVIEW OF LITERATURE

Girija (1998), in its article “Socioeconomic Implications of Telecommunications

Liberalization: India in the International Context” says that Telecommunications

restructuring have evolved differently in Asia and Latin America. While Asian

governments have moved cautiously in bringing changes to the sector, Latin American

nations have implemented radical ownership and market transformations. The Indian

telecommunications reform falls in between these two general regional trends. The

choice of a high component of competition, increased private participation, and no

privatization of the national carrier set conditions that will trigger unique socioeconomic

effects. This article identifies and highlights the likely implications of the Indian reform

on key economic and social issues, such as the cost of services, cross-subsidies, network interconnection, private investments, universal services, employment, and the possible

rise of an information-intensive economy. It does so by comparing and contrasting the

Indian experience with dominant reform strategies elsewhere in the developing world.

T.H. Chowdary (1999) discusses how Telecom reform, or demonopolization, in India

has been bungled. Shaped by legislation dating back to the colonial era and post Second

World War socialist policies, by the mid-1980s India realized that its poor

telecommunications infrastructure and service needed reform. At the heart of the problem

lay the monopoly by the government’s Department of Telecommunications (DOT) in

equipment, networks and services. The National Telecom Policy 1994 spelt out decent

objectives for reform but tragically its implementation was entrusted to the DOT. This

created an untenable situation in which the DOT became policymaker, licenser, regulator,

operator and also arbitrator in disputes between itself and licensed competitors. He

discusses the question: ‘Why did India get it so wrong? and What India should do now?

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Anand (1999), in his article named “India's economic policy reforms” says that India

was embarked on economic reforms in July 1991, in the wake of a balance of

payments crisis. In this article, an attempt is made to review two books and a set of

World Bank reports concerning the progress of these reforms. Issues concerning

economic policy, impact of the reforms on poverty, sectoral issues relating to agriculture,

industry and infrastructure are briefly discussed. As reforms enter a more difficult phase,

several challenges remain. Some of this fall under the “economic agenda'' of measures

needed to maintain economic growth; others can be termed the “development agenda'' -

of improving human development. Progress with regard to the former is not sufficient to

produce results concerning the latter.

Bhattacharya (2000) constructs a vision of the Indian telecommunication sector for the

year 2020. The paper aims at isolating agents of change based on international

experiences and situates India in the development continuum. The agents of change have

been broadly categorized into economic structure, competition policy and technology.

Das (2000), in her paper described the Liberalisation of the Indian telecommunications

services which started in mid nineties with no change in the existing public monopoly

structure, entirely controlled by Department of Telecommunications (DoT). In order to

evaluate any proposed industry structure, it is essential to analyse the production

technology of DoT so as to determine the rationale of liberalisation and sustainability of

competition. Accordingly, the researcher estimates a frontier multi-product cost function

for DoT, where the cost function has been duly modified to account for the production

technology of a public monopoly. The study finds that although DoT displays high

allocation inefficiency, it is still a natural monopoly with very high degree of sub

additively of cost of production. This study implies that the choice of any reform policy

should consider the trade-off between the loss of scale and scope economies and cost

saving from the reduction in inefficiency of the incumbent monopoly in the event of

competition.

Rao (2000), in her article named “Internet service providers in India”, provides a broad

view of the role of an Internet service provider (ISP) and the factors to be considered

before entering the ISP market. Describes the Internet/ISP scene within India anddiscusses the configuration of local, regional and national level ISPs, and the supporting

infrastructure. She also identifies the various success factors. The global Internet scenario

is discussed regarding the phases of the Internet in India, i.e. pre and post

commercialization. The main players are described: ERNET, NICNET, STPI, VSNL,

MTNL, Satyam Infoway and Bharti-BT. The financial and legal implications are

highlighted in the Indian context. Many companies entered the nascent ISP business in



India due to deregulation. Building local content, foreknowledge of new Internet

technologies, connecting issues, competitiveness, etc. would help in their sustainability.

She concludes that though many companies entered the nascent ISP businesses in India

due to deregulation, many of them are unlikely to survive in the longer term.

Vrmani (2000) estimates the contribution of telecommunication (or telecom) services to

aggregate economic growth in India. Estimated contribution is distinguished between

public and private sectors to highlight the impact of telecom privatization on economic

growth. Knowledge of policy determinants of demand of telecom services is shown to be

essential to enhance growth contribution of telecom services. Using a recent sample

survey data from Karnataka State in South India, price and income determinants of

demand for telecom services are estimated by capacity of telephone exchanges

Estimation results offer evidence for significant negative own price elasticity and positive

income elasticity of demand for telecom services.

Narinder (2004), in his article “Enhancing Developmental Opportunities by Promoting

ICT Use: Vision for Rural India” talks about the foremost benefits of Information and

Communication Technologies (ICTs) in developing countries that can be helpful in

improving governance including public safety and eradication of illiteracy. The benefits

of ICTs have not reached the masses in India due to lack of ICT infrastructure,

particularly in rural areas, where two-third of the population of the country lives. Even in

cities and suburban areas, use of ICTs is not popular due to lack of awareness to its use,

computer illiteracy, and absence of practical applications. India is the largest country in

South Asia, with a population of over one billion people and its telecom sector is

presently experiencing fast growth phases. However telephony penetration in villages isless than two percent of the rural population and about 15 percent of the villages are still

without any telephony service. Universal access to ICTs in rural areas has been planned

and is being implemented through Public Tele Info Centers having voice data and video,

as majority of villagers in India cannot afford a separate home connection. Illiteracy in

rural areas is as high as 40 percent and in some tribal belts hardly about 20 percent

people are literate. There are 35 million children in age group of 6–11 years, who are out

of school and one out of four drops out during primary classes. Education and training,

therefore, must be given the top priority if advantages of ICTs are to be harnessed. Indian

economy is agriculture based and employs maximum workforce. Improvement in

agriculture productivity can help in reducing rural poverty. Adoption of ICT in

agriculture will play an increasingly important role in crop production and natural

resource management. The other critical factor is technological challenges for universal

access to ICTs to bring down the network access cost.



Nikam, Ganesh, Tamizhchelvan (2004), analyses that changing face of India in

bridging the digital device. He reiterated - “India lives in villages” said the Father of the

Nation, Mahatma Gandhi. With 1,000 million people and 180 million households, India

is one of the biggest growing economies in the world. With the advent of the Information,

Communication and Technology (ICT) revolution, India and its villages are slowly but

steadily getting connected to the cities of the nation and the world beyond. Owing to the

late Rajiv Gandhi, India is now a powerful knowledge economy, and though India may

have been slow to start, it certainly has caught up with the West and is ahead in important

respects. The Government, the corporate sector, NGOs and educational institutions have

supported rural development by encouraging digital libraries, e-business, e-learning and

e-governance. The aim of this paper is to touch upon and highlight some of the areas

where, by using ICT, the masses have been reached in this way. A follow-up paper will

outline collections of significant cultural material which, once national IT strategies are

fully achieved, could form part of a digitally preserved national heritage collection.

Dey (2004), in her article talks about the discussions between the Federal

Communications Commission (FCC) and communications policy makers and regulators

in other countries and how they have gleaned several clusters of issues where further

research would directly benefit them. Recently, there have been two notable shifts. First,

as the acceptance of the competition model over the monopoly model for

telecommunications markets takes deep effect in regulators all over the world, questions

regarding process and procedure for regulation are becoming ever more urgent. This

paper discusses current questions regarding decision making, enforcement, and

understanding consumer issues that arise often in the FCC's discussions with other

regulators. Second, technological change is potentially shifting market definitions. In theFCC's discussion with other regulators over the last two years, the overlap of wireline

telecom, wireless telecom and cable television has become more pronounced.

Singh (2005), in his article “The role of technology in the emergence of the information

society in India” describes the role that information and communication technologies are

playing for Indian society to educate them formally or informally which is ultimately

helping India to emerge as an information society. Though India has a huge population,

the illiteracy rate is also huge in this country. The paper has taken an approach to find the

historical situation and present the prevailing scenario as well as the change that are

taking place with the application of ICT to the advantage of the society in different areas

including daily life. India is making all out efforts to be counted among the developed

nations of the world. The article also describes the considerable attention India is taking

for application of technology, development of infrastructure and human resource for

meeting national needs. Basically India is building an information society. Technology

has helped society to cut across the traditional boundaries for getting converted into an



emerging information society. The study concludes that The Indian software and services

industry has significantly helped to boost the Indian economy. In IT-enabled services too,

India has been clearly perceived to be the dominant hub. The Indian software sector is

being recognized as the single largest contributor to incremental market capitalization in

India but the sector is still small in terms of contribution to GDP, especially when

compared to other large sectors in the economy like agriculture and manufacturing.

Similarly, the telecommunication sector has contributed a lot but still has a considerable

way to go. The paper also enforces that comparisons of India’s telecommunication

statistics with those of developed and other emerging economies show that the country is

still far behind its contemporaries.

Mr. Banka (2006) gives an overview of the mergers and acquisitions in the

telecommunication industry. According to him Governments decision to raise the foreign

investment limit to 74% is expected to spur fresh rounds of mergers and takeovers in

India. He foresees a sector that represents humongous opportunity waiting to be tapped

by Indian and foreign conglomerates.

Thomas (2007), in his article describes the contribution made by telecommunications in

India by the state and civil society to public service, this article aims to identify the

state’s initial reluctance to recognize telecommunications provision as a basic need as

against the robust tradition of public service aligned to the postal services and finds hope

in the renewal of public service telecommunications via the Right to Information

movement. The article follows the methodology of studying the history of

telecommunications approach that is conversant with the political economy tradition. Ituses archival sources, personal correspondence, and published information as its research

material. The findings of the paper suggests that public service in telecommunication is a

relatively ‘‘new’’ concept in the annals of Indian telecommunications and that a de-

regulated environment along with the Right to Information movement holds significant

hope for making public service telecommunications a real alternative. The article

provides a reflexive, critical account of public service telecommunications in India and

suggests that it can be strengthened by learning gained from the continual renewal of

public service ideals and action by the postal services and a people-based demand model

linked to the Right to Information Movement. All studies done by the researcher suggests

that the right to information movement has contributed to the revitalisation of

participatory democracy in India and to a strengthening of public service

telecommunications.

Cygnus Business Consulting & Research Pvt. Ltd. (2008), in its “Quarterly

Performance Analysis of Companies (April-June 2008)” has analysed the Indian telecom

industry in the awake of recent global recession and its overall impact on the Indian



economy. The analysis is done in the background of wake of global recession and rising

inflation. Cygnus estimates, the Indian telecom industry is expected to maintain the

growth trajectory in the next quarter as well. With almost 5-6m subscribers are being

added every month, and the country is witnessing wild momentum in the telecom

industry.

Maheshwari (July-September 2008), in her report analysed the Indian telecom industry

and ascertain that Indian telecommunications has been zooming up the growth curve at

an mounting pace, and India is has surpassed US to become the second largest wireless

network in the world. This growing subscriber base is basically created by tapping into

rural India, which is an emerging market for the industry. The estimate for the next five

to ten years is that the rural market will form 40 % of the subscriber base. The study has

analysed the human resource management process of the industry, and specially the latest

trends of recruitment of this massively growing industry.

Anderson (2008), in his single executive interview titled “Developing a route to market

strategy for mobile communications in rural India An interview with Gurdeep Singh,

Operations Director, Uttar Pradesh, Hutch India” suggests that managers need to go

beyond traditional approaches to serving the poor, and innovate by taking into account

the unique institutional context of developing markets. His practical implication says that

the experience of Hutchison Essar in India provides some important lessons for mobile

network operators (MNOs) and other firms in other developing markets who are hoping

to serve the rural poor: Hutchison has recognized the value of corporate and non-

corporate partners. The company has proactively established relationships with

individual entrepreneurs, and has provided has provided development support to other partners such as distributors. The company has recognized the value of leveraging

existing local institutions, and has seen gaps in local infrastructure or missing services as

potential opportunities rather than barriers to growth. The company has seen the rural

market as an opportunity – not just an obligation to be served because of universal

service obligations. Also this article demonstrates that MNOs can deliver availability and

affordability to achieve increased individual or household penetration through business

model innovation.

Mani (2008) addresses a number of issues arising from the growth of telecom services in

India since the mid-1990s. It also discusses a number of spillover effects for the rest of

the economy and one of the more important effects is the potential to develop a major

manufacturing hub in the country for telecom equipment and for downstream industries

such as semiconductor devices. The telecom industry in India could slowly become an

example of the service sector acting as a fillip to the growth of the manufacturing sector.

A beginning towards this has been made. The formation of a Telecom Equipment Export

Forum and the announcement of the Indian Semiconductor Policy 2007 are steps in this



direction. Success crucially depends on the response of the private sector to these

incentives. Given the importance that a regulatory agency can play in this crafting, no

effort should be lost in strengthening the powers of the TRAI. The benefits to the Indian

economy from having both a strong services and manufacturing segments in the telecom

sector cannot be undermined.

Narayana (2008) estimates the contribution of telecommunication (or telecom) services

to aggregate economic growth in India. Estimated contribution is distinguished between

public and private sectors to highlight the impact of telecom privatization on economic

growth. Knowledge of policy determinants of demand of telecom services is shown to be

essential to enhance growth contribution of telecom services. Using a recent sample

survey data from Karnataka State in South India, price and income determinants of

demand for telecom services are estimated by capacity of telephone exchanges.

Estimation results offer evidence for significant negative own price elasticity and positive

income elasticity of demand for telecom services.

Sharma (2009) deals with the major challenges faced by India’s telecom equipment

manufacturing sector, which lags behind telecom services. Only 35% of the total demand

for telecom equipment in the country is met by domestic production. This is not

favourable to long-term sustained growth of the telecom sector. The country is also far

behind in R&D spending when compared to other leading countries. India needs to see an

increase in R&D investment, industry-academia-government partnership, better quality

doctoral education and incentives to entrepreneurs for start-ups in telecom equipment

manufacturing. In 2006-07, 65% of the total consumption of equipment was met through

imports. This trend has far-reaching implications for the economy and should not beallowed to continue for long. In a country like India which has a problem of massive

unemployment, the manufacturing sector should be promoted to create more employment

opportunities.

Shah (February, 2009), has analysed Indian telecom industry and studied the sector

keeping in mind three companies; namely Bharti, R.Comm and idea in the background of

recent global meltdown. The study suggests that though there is no sign of slowdown in

this sector, but surely a strong turmoil is going on in the industry. The study states that

the sector is fairly immune from the current economic downturn & does provide a good

defensive bet in medium term. With the help of newer technologies, wireless penetration

is expected to increase in the near future, which is basically fuelling the growth of the

sector. While the 3G / Broadband adoption would ensure long term growth momentum,

the article has thoroughly investigated about the intense competitive scenario, pricing

pressure, high capital intensity & substantial regulatory uncertainties currently faced by

the industry. The article has also described the cause of being relatively safe of this



industry. The causes described by Shah are increasing rural coverage, rising affordability,

declining handset/subscription costs, substantially low tariffs & established

brand/distribution. However, the study also cautions the telecom industry that a steeper

economic slowdown could start impacting the subscriber usage patterns as well as

operator capital investments & thereby could substantially restrict revenue growth rates

going forward.

Chapter 3

GLOBAL

OVERVIEW



3.1 INTRODUCTION

World telecom industry is an uprising industry, proceeding towards a goal of achievingtwo third of the world's telecom connections. Over the past few years information and

communications technology has changed in a dramatic manner and as a result of that

world telecom industry is going to be a booming industry. Substantial economic growth

and mounting population enable the rapid growth of this industry.

The world telecommunications market is expected to rise at an 11 percent compound

annual growth rate at the end of year 2010. The leading telecom companies like AT&T,

Vodafone, Verizon, SBC Communications, Bell South, Qwest Communications are trying

to take the advantage of this growth. These companies are working on

telecommunication fields like broadband technologies, EDGE(Enhanced Data rates for Global Evolution) technologies, LAN-WAN inter networking, optical networking, voice

over Internet protocol, wireless data service etc.

Economical aspect of telecommunication industry: World telecom industry is taking a

crucial part of world economy. The total revenue earned from this industry is 3 percent of

the gross world products and is aiming at attaining more revenues. One statistical report

reveals that approximately 16.9% of the world population has access to the Internet.

Present market scenario of world telecom industry: Over the last couple of years, world

telecommunication industry has been consolidating by allowing private organizations the

opportunities to run their businesses with this industry. The Government monopolies are

now being privatized and consequently competition is developing. Among all, the

domestic and small business markets are the hardest.



3.2 GLOBAL SCENARIO

Until the 1980s the world telecommunications systems had a simply administrativestructure. The United States telephone service was supplied by a regulated monopoly,

American Telephone and Telegraph (AT&T). Telegraph service was provided mainly by

the Western Union Corporation. In almost all other countries both services were the

monopolies of government agencies known as PTTs (for Post, Telephone, and

Telegraph). In the United States beginning in 1983, AT&T agreed in a court settlement to

divest itself of the local operating companies that provided basic telephonic service. They

remained regulated local monopolies, grouped together into eight regional companies.

AT&T now offers long distance service in competition with half a dozen major and many

minor competitors while retaining ownership of a subsidiary that produces telephonic

equipment, computers and other electronic devices. During the same period Great

Britain’s national telephone company was sold to private investors as was Japan’s NTT

telephone monopoly. For telegraphy and data transmission, Western Union was joined by

other major companies, while many multinational firms formed their own

telecommunications services that link offices scattered throughout the world. New

technology also brought continuing changes in the providers of telecommunication.

Private companies such as Comsat in the United States were organized to provide

satellite communication links within the country.

Around the world we are witnessing remarkable changes to the telecoms environment.

After years of debate, structural separation is now taking place in many parts of the world

including Hong Kong, New Zealand, Singapore and some European markets. Structural

separation – or at least full-blown operational separation – is required to advance the

entire industry and to create new business opportunities and innovations which will

benefit our society, our economy and ultimately our industry.



The focus is also shifting away from broadband to what it can actually achieve. Next

Generation Telecommunications better describes this new environment and is essential

for the emerging digital economy. Important services that depend on NGT include tele-

health, e-education, e-business, digital media, e-government and environmental

applications such as smart utility meters.

In order to meet this burgeoning consumer demand for NGT applications, we are seeing

increasing investment in All-IP Next Generation Networks and fibre networks. A proper

inventory of national infrastructure assets is required if we want to establish an efficient

and economically viable national broadband structure for these services. In the

developing markets, next generations telecoms will take the form of wireless NGNs (ie,

LTE/WiMAX).

These are some of the elements of the broader ICT revolution that is unfolding before our very eyes. We are right in the midst of the transition from old communications structures

(mainly one-way streets) to new structures that are fully-interactive and video-based.

One of the drivers behind the industry changes are the declining revenues experienced by

the telcos in their traditional markets. Over the past 10 years or so, fixed-line operators

have been affected by deregulation, a severe industry downturn, declining prices and

major inroads by mobile services. In addition, people are drifting to other forms of

communication, such as email, online chat, and mobile text messaging instead of the

traditional phone.

This has also led to an increased need for bandwidth, which in turn has revived the

submarine cable sector. In recent times there have been many cable build-out

announcements around the world, and some major systems are again being constructed.

Over 25 systems are expected to be built over the next two to three years and network

upgrades are also on the agenda for some existing systems.

It is clear that the mobile industry is also undergoing profound changes. The saturated

developed markets are forcing the industry to find new revenue streams and we are now

seeing other organizations such as media companies, content providers, Internet media

companies and private equity companies becoming involved in this market.

For the time being however, voice will remain the killer application for mobile with some

data services included as support services and niche market services. 4G (ie,

WiMAX/LTE) is the real solution for mobile data and by 2015 it is expected that the

majority of mobile revenues will come from data.



With the Internet economy, digital media and other telecommunications activities

becoming further established, the need for modern and efficient infrastructure is

becoming more critical.

3.2.1 Key highlights

•

In 2008 the overall telecoms industry was valued at well over $3.5 trillion withsteady growth ahead.

• On a regional level, Western Europe still has the largest share of broadband

subscribers worldwide.

• DSL is the most popular broadband access technology worldwide, equating for

around a 66% market share.

Worldwide telecom statistics at a glance – mid-2008

Table 3.1: Telecom Statistics of the world

TELECOM STATISTICS

Population 6.7 billion

Fixed lines 1.3 billion

Mobile subscribers 3.5 billion

Mobile text messages sent 2.3 trillion

Internet users 1.2 billion

Fixed broadband subscribers 380 million

(Source: BuddeComm estimates)



Table 3.2: Outgoing Minutes of the world

Bank Operator (Country) Fiscal

year

International

outgoing

telephone traffic

International telecom

revenue

(Million) Change

1998-99

(%)

(M

US$)

Change

1998-99

(%)

As % of

total

telecom

revenue

1 AT&T (United States) 31.Dec. 10'900.0 4.3% 4'921.0 -7.7% 7.9%

2 MCI WorldCom

(United States)

31.Dec. 8'306.0 15.4% 3'489.0 27.1% 8.6%

3 Deutsche Telekom

(Germany)

31.Dec. 3'860.0 -18.1% 1'493.5 -53.1% 8.0%

4 Sprint (United States) 31.Dec. 3'640.0 24.8% 825.0 -10.5% 4.1%

5 France Télécom

(France)

31.Dec. 3'200.0 -5.9% 1'333.5 -24.7% 4.6%

Ranked by 1999 outgoing minutes (www.itu.in)

Note: All fiscal year dates show the ending period except those preceded by an asterisk which

show the beginning period.

Source: International Telecommunication Union: PTO database; Tele-Geography

(www.telegeography.com). © ITU, 2001

http://www.itu.in/

http://www.telegeography.com/

http://www.itu.in/

http://www.telegeography.com/



3.2.2 Tele-density

Table 3.3: International Comparison of tele-density



3.3 GLOBAL PLAYERS

3.3.1 AT&T

AT&T Inc. is the largest provider of both local and long distance telephone services,

wireless service, and DSL Internet access in the United States. Formerly SBC

Communications, Inc., the company shed its name and took on the iconic AT&T moniker

and the T stock-trading symbol (for "telephone") after its acquisition of American

Telephone & Telegraph Company (later known as AT&T Corporation).

AT&T Inc. was founded in 1983 as Southwestern Bell Corporation, headquartered in St.

Louis, Missouri. It was one of the seven original Regional Bell Operating Companies, or

"Baby Bells." The company — a holding company for Southwestern Bell Telephone

Company — was created as a result of U.S. antitrust action against American Telephone

& Telegraph Company in 1983. It took full control of Southwestern Bell Telephone on

January 1, 1984.

3.3.2 MCI Worldcom

MCI, Inc. is an American telecommunications company that is headquartered in

Ashburn, Virginia. The corporation was the result of the merger of WorldCom (formerly

known as LDDS followed by LDDS WorldCom) and MCI Communications, and used

the name MCI WorldCom followed by WorldCom before taking its final name on April

14, 2003 as part of the corporation's emergence from bankruptcy. The company formerlytraded on NASDAQ under the symbols "WCOM" (pre-bankruptcy) and "MCIP" (post-

bankruptcy). The corporation was purchased by Verizon Communications with the deal

closing on July 7, 2006, and is now identified as that company's Verizon Business

division with the local residential divisions slowly integrated into local Verizon

subsidiaries.

http://en.wikipedia.org/wiki/Digital_subscriber_line

http://en.wikipedia.org/wiki/American_Telephone_%26_Telegraph


http://en.wikipedia.org/wiki/1983

http://en.wikipedia.org/wiki/St._Louis%2C_Missouri


http://en.wikipedia.org/wiki/Regional_Bell_operating_company

http://en.wikipedia.org/wiki/Southwestern_Bell



http://en.wikipedia.org/wiki/Antitrust



http://en.wikipedia.org/wiki/January_1


http://en.wikipedia.org/wiki/Digital_subscriber_line






http://en.wikipedia.org/wiki/Regional_Bell_operating_company



http://en.wikipedia.org/wiki/Antitrust



http://en.wikipedia.org/wiki/January_1




MCI's history, combined with the histories of companies it has acquired, echoes most of

the trends that have swept American telecommunications in the past half-century: It was

instrumental in pushing legal and regulatory changes that led to the breakup of the AT&T

monopoly that dominated American telephony; its purchase by WorldCom and

subsequent bankruptcy in the face of accounting scandals was symptomatic of the

Internet excesses of the late 1990s. It accepted a proposed purchase by Verizon for

US$7.6 billion.

3.3.3 NEXTEL

Sprint Nextel Corporation is one of the largest telecommunications companies in the US.

With 53.8 million subscribers, Sprint Nextel operates the third largest wireless

telecommunications network in the United States (based on total wireless customers), behind AT&T and Verizon Wireless. Sprint is a global Tier 1 Internet carrier, and, as

such, makes up a portion of the Internet backbone. In the United States, the company also

operates the second largest wireless broadband network and is the third largest long

distance provider.

The company was created in 2005 by the $35 billion purchase of NEXTEL

Communications by Sprint Corporation. In 2006, the company spun off its local landline

telephone business, naming it Embarq and also completed the $6.5 billion acquisition of

Nextel Partners, one of its largest affiliates, which primarily provides Nextel wireless

services to more rural markets.

Sprint Nextel has its executive headquarters in Reston, Virginia and maintains an

operational and engineering headquarters in Overland Park, Kansas (where the largest

number of Sprint Nextel employees are based). Both internally and externally, "Sprint" is

an acceptable short name for the company; however, all iDEN "walkie-talkie" phones

currently being shipped are still branded with the Nextel logo and graphics.

3.3.4 Deutsche Telecom

Deutsche Telekom (DTAG) is a telecommunications company headquartered in Bonn,

Germany. It is the largest telecommunications company in Germany and in the European

Union.



Deutsche Telekom was formed in 1996 as the former state-owned monopoly Deutsche

Bundespost was privatized. As of June 2008, the German Government still holds a 15%

stake in company stock directly, and another 17% through the government bank.

3.3.5 France telecom

France Télécom is the main telecommunication company in France and one of the

largest in the world. It currently employs about 191,000 people (half outside of France)

and has nearly 159 million customers worldwide (2007). For the twelve months ending

September 2004 it had revenue of US$60.11 billion. The current CEO is Didier Lombard.

In August 2005, FT acquired a 77% ownership in the Spanish mobile phone company

Amena, rebranding it Orange España. France Telecom-Orange is the number three

mobile operator and the number one provider of broadband internet services in Europeand, under the brand Orange Business Services, is one of the world leaders in providing

telecommunication services to multinational companies

3.4 GLOBAL TRENDS

The industry is dominated by three major communication tools. These are:

• Fixed-lines

• Mobile

• The Internet

The State of the market though has been changing. This has been mainly characterized by

increasing competition, mainly due to the numerous players in the telecom industry. The

boom in the telecom industry can be mainly attributed to increasing private sector

participants. There also has been an increased independent regulation by these

companies.

3.4.1 Fixed Line and Cellular Line Subscribers

Fixed-line market penetration remains comparatively low in most developing countries,

at an average of 13 per cent by end of 2007 even though the developing world accounted

for 58 per cent of the world’s 1.3 billion fixed phones lines in 2007. In fact, this segment

of the market showed a decline in developed countries and just a slight increase in some

developing countries. Overall, it is fair to say that fixed-line penetration worldwide



stagnated in 2007. Mobile penetration, however, continued to show high growth rates –

enough to reach an estimated 61 per cent of the world’s population (some 4 billion

subscribers) by the end of 2008. Moreover, by the beginning of the year, more than 70

per cent of the world’s mobile subscribers were in developing countries. Five years

earlier, in 2002, those subscribers had been less than 50 per cent of the world total. Africa

remains the region with the highest growth rate (32 per cent between 2006 and 2007).

The graph below shows the growing trends of the fixed and cellular subscribers. This

shows the transition from fixed telephone subscribers to mobile subscribers

Figure: 3.1

Growth in fixed lines, mobile cellular subscribers, estimated Internet users and subscribers to

mobile broadband networks, in billions, 1995-2007

Source: ITU World Telecommunications

3.4.2 High-speed, broadband access trends

ITU’s Internet and broadband data suggest that more and more countries are going high-

speed. By the end of 2007, more than 50 per cent of all Internet subscribers had a high-

speed connection. Dial-up is being replaced by broadband across developed anddeveloping countries alike. In developing countries such as Chile, Senegal, and Turkey,

broadband subscribers represent over 90 per cent of all Internet subscribers.

At the same time, major differences in broadband penetration levels remain, and the

number of broadband subscribers per 100 inhabitants varies significantly between

regions. While fixed broadband penetration stood at less than 1 per cent in Africa, it had



reached much higher levels in Europe (16 per cent) and the Americas region (10 per cent)

by the end of 2007.

Figure: 3.2 The broadband divide

Broadband subscribers by region, 2007

Source: ITU World Telecommunication/ICT Indicators Database.

Figure: 3.3 Fixed and mobile broadband evolution in developed and developing

countries

Mobile broadband subscribers Fixed broadband subscribers

per 100 population, 2007 per 100 population, 2007

Source: ITU World Telecommunication/ICT Indicators Database



Note: ITU’s definition of “Mobile broadband covers mobile cellular subscribers with access to

data communications at broadband speeds (minimum of 256 kbit/s).

The shift to all-IP environments

Probably the best example of the “all-IP” move is the rise of Voice-over-Internet-Protocol

(“VoIP”) services. In the last few years, VoIP services have continued to grow strongly.

Even if they were not as “disruptive” to traditional telephony as had been predicted, VoIP

offerings have proved to be some of the most successful Internet applications. Over the

past two years, the market presence of VoIP has surged forward, although at a slower

growth rate than in 2005. More importantly, it is steadily replacing traditional public

switched telephone network (PSTN) lines in many developed and some developing

countries.

3.5 CONCLUSION

Despite the unsteady state of the global financial markets, the worldwide

telecommunications industry is expected to continue expanding over the next five years

as continuing growth of wireless services in emerging markets offsets the spending

slowdown in the advanced economies, says a new market analysis report from The

INSIGHT Research Corporation. According to the new industry market study, overall

telecommunications services revenues are expected to grow at a compounded rate of

nearly 10.3 percent over the next few years, reaching $2.7 trillion by 2013. wireless

makes the strongest showing while wireline follows a distant second. Nearly all of thegrowth in both sectors is expected to occur in broadband services, with wireless

broadband service revenues expected to grow at a compounded rate of more than 70

percent over the forecast period, while wireline broadband services grow at under 10

percent over the same forecast horizon.

“The 2009 Telecommunications Industry Review: An Anthology of Market Facts and

Forecasts” states that even amidst so much economic uncertainty the fact remains that

telecommunications is a key input factor in economic growth. Telecommunications is a

facilitator of socio-economic advancement and is a critical utility for economic

development, much like water and energy. It is on the basis of telecommunications as alynchpin in the eventual economic recovery that INSIGHT Research projects continued

carrier revenue growth.

“The worldwide economy is in turmoil, there is no doubt about that, but over the long

haul we expect the telecommunications industry to continue growing,” says INSIGHT

president Robert Rosenberg. “Telecom is as necessary to development as roads and



bridges, so we expect it to fare much better than other economic segments that may take

longer to return to normalcy,” Rosenberg concluded.

Chapter 4

INDIAN

OVERVIEW



4.1 INTRODUCTION

Today the Indian telecommunications network with over 375 Million subscribers is

second largest network in the world after China. India is also the fastest growing telecom

market in the world with an addition of 9- 10 million monthly subscribers. The tele-

density of the Country has increased from 18% in 2006 to 33% in December 2008,

showing a stupendous annual growth of about 50%, one of the highest in any sector of

the Indian Economy. The Department of Telecommunications has been able to provide

state of the art world-class infrastructure at globally competitive tariffs and reduce the

digital divide by extending connectivity to the unconnected areas. India has emerged as amajor base for the telecom industry worldwide. Thus Indian telecom sector has come a

long way in achieving its dream of providing affordable and effective communication

facilities to Indian citizens. As a result common man today has access to this most needed

facility. The reform measures coupled with the proactive policies of the Department of

Telecommunications have resulted in an unprecedented growth of the telecom sector.

The thrust areas presently are:

1. 1.Building a modern and efficient infrastructure ensuring greater competitive

environment2. With equal opportunities and level playing field for all stakeholders.

3. Strengthening research and development for manufacturing, value added services.

4. Efficient and transparent spectrum management

5. To accelerate broadband penetration

6. Universal service to all uncovered areas including rural areas.

7. Enabling Indian telecom companies to become global players.

Recent things to watch in Indian telecom sector are:

1. 3G and BWA auctions

2. MVNO

3. Mobile Number Portability

4. New Policy for Value Added Services

5. Market dynamics once the recently licensed new telecom operators start rolling

out

6. Services.



7. Increased thrust on telecom equipment manufacturing and exports.

8. Reduction in Mobile Termination Charges as the cost per line has substantially

reduced

9. Due to technological advancement and increase in traffic.

India's telecom sector has shown massive upsurge in the recent years in all respects of

industrial growth. From the status of state monopoly with very limited growth, it has

grown in to the level of an industry. Telephone, whether fixed landline or mobile, is an

essential necessity for the people of India. This changing phase was possible with the

economic development that followed the process of structuring the economy in the

capitalistic pattern. Removal of restrictions on foreign capital investment and industrial

de-licensing resulted in fast growth of this sector. At present the country's telecom

industry has achieved a growth rate of 14 per cent. Till 2000, though cellular phone

companies were present, fixed landlines were popular in most parts of the country, with

government of India setting up the Telecom Regulatory Authority of India, and measuresto allow new players country, the featured products in the segment came in to

prominence. Today the industry offers services such as fixed landlines, WLL, GSM

mobiles, CDMA and IP services to customers. Increasing competition among players

allowed the prices drastically down by making the mobile facility accessible to the urban

middle class population, and to a great extend in the rural areas. Even for small

shopkeepers and factory workers a phone connection is not an unreachable luxury. Major

players in the sector are BSNL, MTNL, Bharti Teleservices, Hutchison Essar, BPL, Tata,

Idea, etc. With the growth of telecom services, telecom equipment and accessories

manufacturing has also grown in a big way.

Indian Telecom sector, like any other industrial sector in the country, has gone through

many phases of growth and diversification. Starting from telegraphic and telephonic

systems in the 19th century, the field of telephonic communication has now expanded to

make use of advanced technologies like GSM, CDMA, and WLL to the great 3G

Technology in mobile phones. Day by day, both the Public Players and the Private

Players are putting in their resources and efforts to improve the telecommunication

technology so as to give the maximum to their customers.

4.2 TELECOM SUBSCRIBER BASE IN INDIA

Indian telecommunication Industry is one of the fastest growing telecom market in the

world. The mobile sector has grown from around 10 million subscribers in 2002 to

reach 150 million by early 2007 registering an average growth of over 90%. The two



major reasons that have fuelled this growth are low tariffs coupled with falling handset

prices.

Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance

Communication. However, across the globe, CDMA has been loosing out numbers to

popular GSM technology, contrary to the scenario in India.

The other reason that has tremendously helped the telecom Industry is the regulatory

changes and reforms that have been pushed for last 10 years by successive Indian

governments. According to Telecom Regulatory Authority of India (TRAI) the rate of

market expansion would increase with further regulatory and structural reforms.

Even though the fixed line market share has been dropping consistently, the overall

(fixed and mobile) subscribers have risen to more than 200 million by first quarter

of 2007. The telecom reforms have allowed the foreign telecommunication companies to

enter Indian market which has still got huge potential. International telecom companieslike Vodafone have made entry into Indian market in a big way.

Currently the Indian Telecommunication market is valued at around $100 billion (Rupees

400,000 crore). Two telecom players dominate this market - Bharti Airtel with 27%

market share and Reliance Communication with 20% along with other players like BSNL

(Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that has been

puzzling is broadband Internet. Despite the manner in which the country’s Internet

market has been booming, India’s move into high-speed broadband Internet access has

been distinctly slow. And, while there appears to be considerable enthusiasm amongst the

population for the Internet itself, this has not been reflected in broadband subscription

numbers. In 2006 India witnessed a good surge in broadband users with the total

subscriber base in the country expanding by almost 200% to just over 2 million by

years end. Despite this surge, broadband penetration in India still remains around

only 0.2%; broadband services still account for only 25% of the total Internet subscriber

base, still in itself comparatively low. So, if 70% of total population is rural, the scope for

growth in this Industry is unprecedented

The Ministry of Communications and Information Technology (MCIT) is has very

aggressive plans to increase the pace of growth, targeting 250 million telephonesubscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers

is set to occur in rural India. India’s rural telephone density has been languishing at

around 1.9%. The subscriber addition rate has been strong in the last 12 months but the

regulatory developments will increase competition and thus curtail the long-term growth

rates of individual companies. The savings through the setting of tower companies will



partly go towards the higher capex and opex costs from more stringent spectrum

allocation norms for the incumbents.

The Telecommunications sector has been consistently adding more than 7 million

subscribers for the last 6 months, a very healthy net addition rate infact. All the private

operators GSM as well as the CDMA operators have been very consistent in their

performance. The sector provides very strong revenue as well as earnings visibility over

the next 12 months. However the recent regulatory developments are seem to be negative

for the telecom companies as it will increase the number operators per circle which will

intensify competition.

4.3 GENERAL ENVIRONMENT IN THE TELECOM

SECTOR

The year 2007-08 also witnessed a phenomenal growth in the subscriber base for mobile

services which includes subscribers of WLL (F), thus building on the growth trend in

subscriber base experienced since mid-1990s. As per the data available on CTIA

(International Association for the wireless Telecommunications Industry) website, India

has become second largest wireless network in the world after China by overtaking USA.

4.3.1 Wireline Subscriber

The subscriber base of Wireline services as on 31st March 2008 was 39.42 million as

compared to 40.75 million subscribers on 31st March, 2007 registering a decrease of 1.33

million subscribers during the year 2007-08. Out of the 39.42 million wireline

subscribers, 27.78 million are Urban wireline subscribers and 11.64 million Rural

Subscribers.

Figure: 4.1 Wireline Subscriber



4.3.2 Wireless Subscriber

The wireless subscriber crossed the 261 million subscriber mark at the end of thefinancial year in comparison to the subscriber base of 165.11 million at the end of March,

2007. It added 95.9 million subscribers in the financial year 2007-08 registering an

annual growth rate of about 58.12%. The total subscriber base of wireless services has

grown from 33.69 million in March, 04 to 261.07 million in March, 08.

Figure: 4.2 Wireless Subscriber

4.3.3 Internet Subscriber

The Internet subscriber base in the country as of 31st March 2008 stood at 11.09 million

as compared to 9.27 million during the previous year, registering an annual growth rate

of about 19.63%.

Figure: 4.3 Internet Subscriber



4.3.4 Broadband Subscriber

The total Broadband subscriber base has reached 3.87 million by the end of March, 2008

as compared to 2.34 million by the end of March 2007 thereby registering a net addition

of 1.56 million broadband subscribers during the financial year 2007-08.

Figure: 4.4 Broadband Subscriber

4.3.5 Tele-density

The tele-density at the end of March, 2008 reached to the mark of 26.22% as compared

to 18.23% at the end of previous year recording an increase of nearly 8%. Competition

driven by regulatory initiatives, technological advancements and policy initiatives

continue to push the growth to newer levels. This trend was more visible in mobile and

long distance services. The competitive pressures also made the service providers to be

more innovative in their tariff offerings.

Figure: 4.5 Growth of Tele-density



4.4 REVIEW OF BASIC SERVICES

As on 31st March 2008, wireline connections are being provided by 5 licensed private

operator groups in addition to the incumbent BSNL and MTNL. The list of Service

Providers providing wireline services along with their area of operation is given in thetable below. The subscriber base of basic services (Wireline) recorded a decrease of

3.28% in 2007-08 over the previous year. In comparison, the private BSOs, recorded an

annual increase of 43.14% in the subscriber base during the year 2007-08. As on 31st

March 2008, the incumbents BSNL and MTNL had 80% and 9% market share

respectively in the subscriber base, while all the five private BSOs had only 11% of the

total subscriber base. During the previous year, at the end of March 2007, the market

share of the BSNL and MTNL was 83% and 9% respectively, while the share of all the

private operators taken together was 8%. Thus the market share in terms of subscriber

base of the incumbents BSNL and MTNL has slightly decreased, whereas the market

share of private BSOs has increased by 3%. The 5 private BSOs have added 8.96 lakhs

new Direct Exchange Lines (DELs). However, BSNL has recorded a reduction of 21.86

lakhs DELs, whereas MTNL has also registered an annual decline of 0.47 Lakhs DELs.

Thus Private operators have contributed to provide most of the new additions in DELs.

The total subscriber base however has been recorded an annual decline of 13.37 lakhs

DELs in comparison to previous year.

Table 4.1 Companies and No. of Circles covered



4.4.1 Review of Wireless (GSM and CDMA)

Services

The Wireless Industry crossed 261 million-subscribers mark at the end of the financial

year 2007-08. This total subscribers base of 261.07 million comprise of 192.7 million

GSM and 68.37 million CDMA subscribers. During the financial year 2007-08 around

95.96 million subscribers were added with a growth rate of 58.12% as compared to

67.17% growth during the year 2006-07. The growth of subscriber base of Wireless

(including GSM and CDMA) Services from March 2004 to March 2008 is depicted in

Figure 1.10 The subscriber base & market share of different mobile operators as on

March 2008 is displayed in Figure . In the wireless segment, GSM services has reached

the 192.70 million subscriber mark at the end of financial year 2007-08, as compared to

120.47 million during the previous year. It added around 72.23 million subscribers during

the year, registering an annual growth of 59.96%. In terms of subscriber base and market

share of GSM services, M/s Bharti with 61.98 million subscriber base remains the largest

GSM operator followed by M/s Vodafone, M/s BSNL, and M/s Idea with subscriber baseof 44.13 million, 36.21 million and 24.00 million respectively. The market share of

different GSM operators as on March 2008 is displayed in Figure 1.12. In Cellular

CDMA services, in terms of subscriber base and market share, M/s Reliance Infocom

with 38.78 million subscriber base remains the largest CDMA operator followed by M/s

Tata and M/s BSNL with subscriber base of 24.33 million, and 4.58 million respectively.



Figure: 4.6 Market share of wireless service providers (as on 31st March 2008)

Figure: 4.7 Subscriber growth of wireless services (GSM and CDMA)

Public and Private Sector Contribution in the Growth of Fixed and Mobile Services

Before opening up of the Telecom Sector for the private players, growth in telecom

services was primarily driven by public sector monopoly, showing very marginal growth,

as the incremental tele-density between 1948 and 1998, a 50 year period, was only



1.92%. Telecommunication development in the initial stage of the reforms process

beginning with NTP’94 started at a slow pace, but accelerated later on under NTP’99,

which provided for migration from fixed license fee to revenue share regime. Cost-

oriented Telecom tariffs were also introduced by TRAI in 1999.

From 2003 onwards, as a result of certain pragmatic decisions by the Government and

the Regulator, viz., introduction of Calling Party Pay (CPP) regime, Unified Access

licensing regime, lowering of access deficit coupled with introduction of revenue share

regime in ADC triggered further growth. The policy and regulatory regime established by

the Government and the Regulator has led to speedy growth of subscriber base of the

incumbent Public Sector Undertakings as well as that of the private sector operators.

During the period 1998-2008, the absolute growth in subscriber base of PSU operators

was 61.7 million comprising of 19.5 million fixed subscribers and 42.2 million mobile

subscribers. The PSU Operators have shown remarkable growth in the competitiveenvironment, while in the pre-reform non-competitive environment, their performance

was slow. Figure 1.15 shows growth in subscriber base of PSU Operators. Private

operators have also shown remarkable growth in a highly competitive environment. The

overall growth in the subscriber base of private operators during 1998-2008 was 220.94

million comprising of 9.81 million fixed subscribers and 211.13 million mobile

subscribers. Private operators have contributed very largely to post 1998 growth

primarily in mobile services due to the obvious cost and fast deployment advantages. The

Figure shows the growth in subscriber base of private operator. It may be seen from the

two graphs at Figure and Figure that in comparison to Private Sector, the growth of

subscriber base of PSUs have been very low during the last five years.

Figure: 4.8 PSU Operators Subscriber Base



Figure: 4.9 Private Operators Subscribers Base

4.4.2 Public Mobile Radio Trunked Services

Public Mobile Radio Trunked Service (PMRTS) was opened for private sector in the year

1995. As on 31st March 2007, PMRTS is being provided by 12 operators. The subscriber

base of PMRTS has recorded a growth rate of 15.04% during 2007-08 over the previous

year. Its subscriber base increased from 31501 at the end of March 2007 to 36240 at the

end of March 2008.

4.4.3 Internet Services

TRAI is constantly monitoring the growth of the Internet and Broadband services in the

country by way of Performance Monitoring Reports being submitted by Internet Service

Providers (ISP). Issues raised by ISPs, from time to time, were successfully resolved by

TRAI to create conducive environment and to encourage the growth of the service during

the financial year. Total 138 ISPs reported data to TRAI, which indicates 11.09 million

Internet Subscribers at the end of 31st March 2008. There was an increase of 19.63% inthe subscriber’s base as compared to March 2007.

The distribution of Internet Subscribers among Govt. ISPs & Private ISPs as on 31st

March 2008 is at Figure 1.17. The market share of top eight Internet Service Providers

(ISPs), including BSNL, in terms of subscriber base as on 31st March 2008 is at Figure

1.18. The BSNL has maximum of 50.82% of total internet subscriber base. Among PSUs



owned ISPs, M/s BSNL and M/s MTNL have reported a subscriber base of 5.64 Million

and 1.89 Million respectively. Amongst the Private Sector ISPs M/s Bharti Airtel Limited

has a subscriber base of 0.81 Million and stood third overall.

Figure: 4.10 Share of pubic and private sector IPS (in lakhs)

4.4.4 Broadband

The number of Broadband subscribers (with a download speed of 256 kbps or more) was

3.87 Million on 31st March 2008 as compared to 2.34 Million subscribers on 31st March

2007 registering an annual growth of 65.38%. The distribution of Broadband subscribers

among Government ISPs and Private ISPs as on 31st March 2008 is as below:

Table: 4.2 Number of broadband subscribers

4.4.5 Internet Telephony

On the recommendation of TRAI, Government issued the guidelines on 24th August

2007 for further opening of Internet Telephony by permitting all ISPs signing new ISP

License to provide Internet Telephony. The restrictions on devices being used for Internet



Telephony have also been removed. As on 29th February 2008, DOT has given

permission to 149 ISPs (Category ‘A’ – 56; Category ‘B’ – 64; and Category ‘C’ – 29) to

offer Internet Telephony services. At the end of 31st March 2008 30 ISPs have reported

the provisioning of Internet Telephony Services. The total minutes of usage of internet

telephony are 115 million at the end of 31st March 2008.

4.4.6 Broadband Casting and Cable TV Services

In order to regulate the ‘carriage’ of Broadcasting and Cable Services, the Government of

India issued a Notification dated 9th January, 2004 by which broadcasting and cable

services have been brought within the purview of TRAI in terms of section 2(k) of the

Telecom Regulatory Authority of India Act, 1997. The Government also issued an order

dated 9th January, 2004 under section 11(d) of the TRAI Act, which mandated TRAI to

make recommendations regarding terms and conditions on which the “Addressable

Systems” shall be provided to the customers and the parameters for regulating maximum

time for advertisements in pay channels as well as other channels. The order also

entrusted to TRAI, the function of specifying the standard norms for, and periodicity of

revision of rates of pay channels, including interim measures.

(a) Cable TV Service

At present, as per latest estimates there are 127 million households in India having

television sets. Out of this, there are 71 million household subscribers of cable television

services. The maximum number of Free-to-Air (FTA) Channels, pay channels and localchannels being carried by MSOs in their networks across the country as on Quarter

ending 31st March 2008 was 133, 95 and 8 respectively. These figures are based on the

reports received from some of the major service providers regarding the number of

channels being carried by them in their Networks, analog and / or in digital form. These

channels have been reported across different networks of the service providers having

different combinations of pay, FTA and local. As on 31st March 2008, the total number of

set-top box installed in the CAS notified areas of Delhi, Mumbai, Kolkata and Chennai

was 6,07,883. A break-up of the set top boxes in the four metropolitan cities has been

depicted in the graph below:

Figure: 4.11 Set top boxes in CAS notified area



(b) Satellite TV Channel

At the end of March 2008, there are reportedly 114 pay channels in existence and these

channels are being broadcasted / distributed by 17 broadcasters or their distributors

(c) DTH Services

Apart from Free-to-Air DTH service of Doordarshan, there were six private DTHlicensees and out of these six licensees, only three licensees are offering paid DTH

Service to customers as on 31st March 2008. The following are the six private DTH

licensees:

1. Dish TV

2. Tata Sky Limited

3. Sun Direct TV Private Limited

4. Reliance Blue Magic Limited

5. Bharati Telemedia Limited

6. Bharat Business Channel Limited

(d) FM Radio / Community Radio Service

Apart from FM Radio Stations of All India Radio (AIR), there are 205 private FM Radio

Stations in operation across the country as on 31st March 2008. For the quarter ending



March 2008 out of 49 licensees of Community Radio Stations, 35 Stations are in

operation

4.5 FDI

Ever since the government opened up its gates for foreign direct investment (FDI) in

1991, telecom sector has emerged as the clear winner in attracting foreign capital.

For starters, Indian telecom sector ranks first in terms of actual FDI inflow since August

1991 till February 2003, pipping to post many developed as well as developing countries

including the South East Asian countries. More, it stands second only to petrochemicals

in attracting FDI, beating other sectors in the manufacturing as well as services.

Table: 4.3 FDI Inflows into India’s Telecom Industry (1991-2007, in Rs million)

According to the numbers published by Investindiatelecom, an on-line agency which

tracks developments in the Indian telecom sector, Indian telecom has grossed actual FDI

worth Rs 9,576.40 crore during the period starting from late 1991 to early 2003. In

absolute terms, this is the highest inflow of FDI into the telecom sector in the world.



Mauritius, which houses a number of holding and investment companies, emerges as a

distant second with FDI grossing Rs 6,855.83 crore during the period.

“The Mauritius numbers may be deceptive as it is one of the last tax havens in the region

and may include money actually invested elsewhere. Though data for several importantcountries are not included, the FDI inflow into India telecom sector is impressive,” a

senior analyst who tracks the telecom sector says.

Of the total FDI inflow into Indian telecom sector, the lion’s share has gone into

investment in holding companies followed by cellular network and manufacturing and

consultancy. The total foreign money invested in the holding companies stood at Rs

4,813.3 crore or 50.26 per cent of the total inflow, cellular telephony attracted Rs 2,332.8

crore accounting for 24.36 per cent during the period.

The foreign capital inflow into the manufacturing and consultancy segment stood at Rs

1,578.4 crore or 16.48 per cent of the total inflow.

On an inter-sectoral comparison, telecom sector is the second largest recipient of FDI

with 19.79 per cent of total inflow.

“The numbers are a clear indication of the foreign companies perception about the

prospects in Indian telecom sector. So far, the investment is mainly confined to cellular

telephony. However, with recent changes, basic telephony too will start attracting foreign

capital in a big way,”

4.6 PERFORMANCE OF TELECOM EQUIPMENT

MANUFACTURING SECTOR

As a result of Government policy, progress has been achieved in the manufacturing of

telecom equipment in the country. There is a significant telecom equipment-

manufacturing base in the country and there has been steady growth of the manufacturing

sector during the past few years. The figures for production and export of telecom

equipment are shown in table given below:



Table: 4.4 Year wise production and export of telecom equipment-manufacturing sector

(Rs. in crore)

Year Production Export

2002-03 14400 402

2003-04 14000 250

2004-05 16090 400

2005-06 17833 1500

2006-07 23656 1898

(Source: www.dot.gov.in)

Rising demand for a wide range of telecom equipment, particularly in the area of mobile

telecommunication, has provided excellent opportunities to domestic and foreign

investors in the manufacturing sector. The last two years saw many renowned telecom

companies setting up their manufacturing base in India. Ericsson set up GSM Radio Base

Station Manufacturing facility in Jaipur. Elcoteq set up handset manufacturing facilities

in Bangalore. Nokia and Nokia Siemens Networks have set up their manufacturing plantin Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near

Pune.

Ericsson launched their R&D Centre in Chennai. Flextronics set up an SEZ in Chennai.

Other major companies like Foxconn, Aspcom, Solectron etc have decided to set up their

manufacturing bases in India.

The Government has already set up Telecom Equipment and Services Export Promotion

Council and Telecom Testing and Security Certification Centre (TETC). A large number

of companies like Alcatel, Cisco have also shown interest in setting up their R&D centers

in India. With above initiatives India is expected to be a manufacturing hub for thetelecom equipment.

4.7 TARGETS SET BY THE GOVERNMENT

1. Network expansion



a. 500 million connections by the year 2010

b. Provision of mobile coverage of 90% geographical area by 2010

2. Rural telephony

a. One phone per two rural households by 2010 (about 80 million rural

connections)

b. Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010

3. Broadband

a. Broadband with minimum speed of 1 mbps

b. Broadband coverage for all secondary & higher secondary schools and

public health care centres by the end of year 2008

c. Broadband coverage for all Grampanchayats by the year 2010

4. Infrastructure Sharing a. USO subsidy support scheme for shared wireless infrastructure in rural

areas with about 18,000 towers by 2010

b. Increase sharing in urban areas to 70% by 2010

5. Introduction of Spread of IPTV and Mobile TV

a. IPTV in 600 towns by 2010

6. Manufacturing

a. Making India a hub for telecom manufacturing by facilitating more and

more telecom specific SEZs b. Quadrupling production in 2010

c. Achieving exports of 6 times from present level of 0.5 billion in 2010

7. Research & Development

a. Pre-eminence of India as a technology solution provider

b. Comprehensive security infrastructure for telecom network

c. Tested infrastructure for enabling interoperability in Next Generation

Network

d. Doubling the telecom equipment R&D by 2010 from present level of 15%

8. 8.International Bandwidth

a. Facilitating availability of adequate international bandwidth at competitive

prices to drive ITES sector at faster growth

Table: 4.4 Indian Telecommunications at a glance



( As on 30th September 2008)

Rank in world in network size 3rd

Tele–density (per hundred populations) 30.64

Telephone connection (In millions)

Fixed 38.35

Mobile 315.31

Total 353.66

Village Public Telephones 5.6 lakh

Foreign Direct Investment (in million) (from

January 2000 till August 2008)

182042 million

Licenses issued

Basic 2

CMTS 60

UAS 224

Infrastructure Provider I 177

ISP (Internet) 382

ISP with Telephony (Broadband) 125

National Long distance 24

International Long Distance 19

4.8 CONCLUSION

Indian telecommunication Industry is one of the fastest growing telecom markets in the

world. The mobile sector has grown from around 10 million subscribers in 2002 to

reach 150 million by early 2007 registering an average growth of over 90% y-o-y.

The two major reasons that have fuelled this growth are low tariffs coupled with falling

handset-prices

Surprisingly, CDMA market has increased it market share upto 30% thanks to Reliance

Communication. However, across the globe, CDMA has been losing out numbers to

popular GSM technology, contrary to the scenario in India. The other reason that has

tremendously helped the telecom Industry is the regulatory changes and reforms that

have been pushed for last 10 years by successive Indian governments. According to

Telecom Regulatory Authority of India (TRAI) the rate of market expansion would

increase with further regulatory and structural reforms. Even though the fixed line market

share has been dropping consistently, the overall (fixed and mobile) subscribers have

risen to more than 200 million by first quarter of 2007. The telecom reforms have



allowed the foreign telecommunication companies to enter Indian market which has still

got huge potential.

International telecom companies like Vodafone have made entry into Indian market in a

big way. Currently the Indian Telecommunication market is valued at around $100billion (Rupees 400,000 crore). Two telecom players dominate this market - Bharti Airtel

with 27% market share and Reliance Communication with 20% along with other players

like BSNL (Bharat Sanchar Nigam Limited) and AT&T. One segment of the market that

has been puzzling is broadband Internet. Despite the manner in which the country’s

Internet market has been booming, India’s move into high-speed broadband Internet

access has been distinctly slow. And, while there appears to be considerable enthusiasm

amongst the population for the Internet itself, this has not been reflected in broadband

subscription numbers. In 2006 India witnessed a good surge in broadband users with the

total subscriber base in the country expanding by almost 200% to just over 2

million by year’s end. Despite this surge, broadband penetration in India still remains

around only 0.2%; broadband services still account for only 25% of the total Internet

subscriber base, still in itself comparatively low.

The Ministry of Communications and Information Technology (MCIT) is has very

aggressive plans to increase the pace of growth, targeting 250 million telephone

subscribers by end-2007 and 500 million by 2010. Most of the expansion in subscribers

is set to occur in rural India. India’s rural telephone density has been languishing at

around 1.9%; So, if 70% of total population is rural, the scope for growth in this Industry

is unprecedented.

Chapter 5



INDUSTRY

STRUCTUR

E

5.1 INTRODUCTION



The telecom industry is one of the prime contributors to India's GDP. The once

monopolistic market is today, highly competitive. This has necessitated the growth of

India telecom infrastructure.

From the time of the British Rule, the Telecom Industry was under the strict supervision

of the government. The trend continued even after independence until the late 1990s

when the following initiatives were taken up by the government:

* The telecom sector was opened up for private investment as a part of liberalization-

privatization-globalization policies

* On 1st October, 2000 the Government corporatized its operations wing under the

name of Bharat Sanchar Nigam Limited (BSNL)

* The criteria for private companies for entering the telecom sector were relaxed

What followed was a rapid development of the market for mobile phones and allied

innovations, hence bringing about a new era in the telecom sector in India.

5.2 INDIA TELECOM INFRASTRUCTURE

The telecom services have been recognized the world-over as an important tool for socio-

economic development for a nation. It is one of the prime support services needed for

rapid growth and modernization of various sectors of the economy. Driven by various

policy initiatives, the Indian telecom sector witnessed a complete transformation in the

last decade. It has achieved a phenomenal growth during the last few years and is poised

to take a big leap in the future also.

5.2.1 India telecom infrastructure – present status

The government of India believes that for rapid economic development backed by social

welfare, the telecom infrastructure in India needs to be uplifted. This necessitates the

formulation of a comprehensive telecom policy that visualizes the future of the Indian

telecom market. By the beginning of 2007, the telecom network in India consisted of 48

million fixed-line connections. Nowadays, a vast majority of the population has access to

telephone services. The highly competitive environment has ensured low pricing of

goods and services that caters to the weaker sections of the society. Moreover, the

enhancement of India telecom infrastructure has also widened the scope of the telecom

sector to other allied ventures like mobile services, Internet, cable TV services, E-

Commerce, and other forms of Information Technology (IT).



The Indian Telecommunications network with 353 million connections (as on September

2008) is the third largest in the world. The sector is growing at a speed of 46-50% during

the recent years. This rapid growth is possible due to various proactive and positive

decisions of the Government and contribution of both by the public and the private

sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of

the Government that provides easy market access for telecom equipment and a fair

regulatory framework for offering telecom services to the Indian consumers at affordable

prices

In terms of long distance calls, India telecom infrastructure has made remarkable

progress. Latest technologies, like use of fibre-optic cables has enhanced call-clarity and

reduced call-costs to a large extent. The present telecom and mobile-phone service

providers in India, apart from BSNL include Hutchison Essar, Reliance Communications,

Bharti Airtel, Idea, Tata Indicom, and a few others.

5.2.2 India telecom infrastructure – present status

India has proven its dominance as a technology solution provider. Efforts are being

continuously made to develop affordable technology for masses, as also comprehensive

security infrastructure for telecom network. Research is on for the preparation of tested

infrastructure for enabling interoperability in Next Generation Network. It is expected

that the telecom equipment R & D shall be doubled by 2010 from present level of 15%.

Modern technologies inductions are being promoted. Pilot projects on the existing and

emerging technologies have been undertaken including WiMax, 3G etc. Emphasis is

being given to technologies having potential to improve rural connectivity. 3G and

Broadband Wireless Access (BWA) policies have since been issued. Also to improve the

R&D infrastructure in the telecom sector and bridge the digital divide, cellular operators,

top academic institutes and the Government of India together set up the Telecom Centres

of Excellence (COEs).

5.2.3 Targets Set By the Government of INDIA

Indian government has taken up the following expansion plan for the future:



1. Network expansion

• 500 million connections by the year 2010.

• Provision of mobile coverage of 90% geographical area by 2010.

2. Rural telephony

• One phone per two rural households by 2010 (about 80 million rural

connections).

• Reduce urban-rural digital divide from present 25:1 to 5:1 by 2010.

3. Broadband

• Broadband with minimum speed of 1 mbps.

• Broadband coverage for all secondary & higher secondary schools and

public health care centres by the end of year 2008.

• Broadband coverage for all gram panchayats by the year 2010

4. Infrastructure Sharing

• USO subsidy support scheme for shared wireless infrastructure in rural areas

with about 18,000 towers by 2010.

• Increase sharing in urban areas to 70% by 2010.

5. Introduction of Spread of IPTV and Mobile TV

• IPTV in 600 towns by 2010.

6. Manufacturing

• Making India a hub for telecom manufacturing by facilitating more and more

telecom specific SEZs.

• Quadrupling production in 2010.

• Achieving exports of 6 times from present level of 0.5 billion in 2010.

7. Research & Development

• Pre-eminence of India as a technology solution provider.

• Comprehensive security infrastructure for telecom network.

• Tested infrastructure for enabling interoperability in Next Generation

Network.

• Doubling the telecom equipment R&D by 2010 from present level of 15%.

8. International Bandwidth



• Facilitating availability of adequate international bandwidth at competitive

prices to drive ITES sector at faster growth.

5.3 MAJOR SEGEMENTS

5.3.1 Basic Services

Basic Services in the public sector, like BSNL and MTNL together account for 99

percent of the 28 million connections. The total revenue in FY2001, for these two entities

combined was INR 287 billion. The telecommunication network of the BSNL - MTNL

combine is one of the largest in Asia, with a capacity of 35 million lines and 28.4 million

working connections. Switching capacity during FY2000 increased by over 40 percent.

In the period from April-December 2000, 4.9 million new fixed line connections were provided representing a growth rate of 29.8 per cent over the corresponding period last

year. As of June 2000, USD 57.5 million FDI has been invested in the basic services

sector. The total number telephone lines is expected to go up to 75 million by the year

2005, and assuming average revenue per user (APRU) of INR 10000 per line, the total

revenue is expected to rise to INR 750 billion by 2005, translating into an CAGR of

around 25 per cent. Until 1994, DoT, now BSNL, was the sole fixed service provider

(FSP) in India except Mumbai and Delhi where services were provided by MTNL. In

1994, the Government of India (GOI) allowed private participation in provision of fixed

services. For the provision of basic services, NTP 94 divided the country into, 21 basic

telecom circles to be serviced by BSNL and one other private sector operator. But in

Delhi and Mumbai, the public sector provider would be MTNL and one private operator.

NTP 99 took this process further and allowed upto four private operators to compete in

each circle and recently TRAI allowed unlimited competition in each circle In addition,

existing cellular providers have been granted permission to operate fixed services using

their GSM infrastructure.

The first round of bidding for basic and cellular services licenses’ mopped up an

astonishing INR 1290 billion as license fees in 1994. Subsequently it turned out that

these amounts were too ambitious, and would possibly lead to bankruptcy. Therefore,under NTP 99 guidelines, the fixed license fee arrangement was replaced by a revenue

sharing regime. The fee structure as it stands now has three components: a fixed entrance

fee of anything between INR 10 million to INR 1.15 billion, a revenue share of 8 to 10

percent and a fee for R&D.



Pre-NTP 99 licensees’ have to clear their license fee dues before moving on to the

revenue sharing regime. The private sector hasn’t shown the level of interest in basic

telephony that was anticipated. Table 2 below shows the various private players in

different circles. Of the 13 projects for which Letters of Intent (LoI’s) had been issued,

license agreements have been signed only in the case of 6 projects. Licenses have been

issued to: Bharti Telenet (for the state of Madhya Pradesh); Tata Teleservices (for the

state of Andhra Pradesh); Reliance Telecom (for the state of Gujarat); Essar Comvision

(for the state of Punjab); Hughes Ispat (for Maharashtra); and Shyam Telelink (for

Rajasthan). These six licensees have to pay license fees USD 650 million to the GOI over

the next 15 years.

In a recent policy announcement, guidelines were issued by the DOT in January 2001, to

permit basic operators to provide limited mobility services (using CDMA technology for

wireless in local loop), within a short distance charging area (SDCA), e.g. a district. In

response to this guideline, fourth round of bidding received 80 bids for the remaining 15circles, from private operators, including existing cellular operators. The same companies

which have bid for basic licenses are likely to bid for other segments NLD and ISD. The

relatively high bids again threaten their financial viability, and often make projects un-

bankable.

5.3.2 National Long Distance (NLD) Services

According to TRAI, NLD represents telecom services within the country but outside the

local area of an exchange system. This sector was liberalized in 2000 and the DoT has

since awarded preliminary approval (LoIs) to Reliance Infocomm and Bharti Telesonic.

MTNL plans to enter the long-distance telephone business along with Railtel, a

subsidiary of the Indian Railways and a third partner. VSNL too has showed interest in

entering this segment of the market in anticipation of a definite end to its monopoly over

ISD services by April 2002.

Guidelines for entry in this sector, issued by TRAI, restrict entry to those, with a

minimum paid-up capital at INR 2.5 billion and combined net worth of INR 25 billion.

The guidelines also require that, NLD operators with national license to carry inter-circle

traffic enter into agreements with respective FSPs, for carrying intra-circle traffic. Thiscan restrict the NLD market to inter-circle market for a pure long-distance player.

According to TRAI estimates, the NLD market size, in FY99, was 26 billion minutes,

with revenues of INR 124 billion (including revenue from the domestic carriage of ISD



which is estimated at INR 21 billion). Inter-circle calls accounted for 25 per cent of the

26 billion minutes traffic and 54 per cent of the INR 124 billion revenue in FY99. Thus,

the addressable market for NLD operators is roughly 50 per cent of the total long

distance market.

5.3.3 International Subscriber Dialing (ISD)

The segment was monopolized by VSNL whose revenue from the ISD services was INR

68 billion in FY2001. ISD call charges have been reduced by 23 per cent in May 1999,

and further 17 per cent in October 2000, as a part of tariff rationalization initiated by

TRAI. The government has invited overseas companies to offer international calling

services.

But the current situation is entirely different.

Tele-density per hundred populations has grown from 7.08 in March 2004 to 8.95 in

March 2005 and to a level of 12.74 in March 2006. Fully automatic International

Subscriber Dialing (ISD) service is available to almost all the countries. The total number

of stations connected to National Subscriber Dialing (NSD) is over 31,686. The growth

in rural demand has outstripped urban demand with telecom penetration in villages

increasing in multiples. Higher telecom dispersal is indicative of reduced economic

disparities, experts point out.

5.3.4 Cellular Mobile Services

The cellular sector is the fastest growing segment within the Indian telecom services. The

billed revenue during FY2001 was INR 38.7 billion. After a slow start, this sector

registered an annual growth rate of more than 70 per cent in FY2000 and FY2001 and is

expected to grow at the same rate for FY2002. Similar to basic services, under NTP 94

each service area for cellular mobile services was to be serviced by two operators with

the difference that both were to be private operators. A 10-year license period was

provided, with DoT reserving the right to enter the market at a future date. In addition

direct interconnection between different private service providers (basic, cellular and

'Value Added Services') in the same service area was not permitted as such

interconnection had to pass through DoT’s and MTNL’s network.

Bids for cellular services were initially invited for the four metros and service

commenced in August 1995. In 1996, cellular telephone services were opened for 18



telecom circles. The licenses for different ‘circles’ (two each per circle) were priced by

public auction. But NTP 99 altered the competitive structure of the industry and changed

the duopoly to unlimited competition in each circle.

A staggering 15.4 million mobile lines were activated in India during January, according

to the latest statistics from the Telecom Regulatory Authority of India (TRAI).

5.4 CONCLUSION

Economic reforms and liberalization have driven telecom sector through several

transmission channels of which these three categories are of major significance. Indian

Telecom Sector is going under a huge technical change. It is attracting a lot of investors,

and thus the industry dynamics is changing rapidly. The telecom sector requires a high

investment and the market is also very competitive. The industry is forced to change

under the influence of international force, experience, technology and competition.



Chapter 6

GOVERNMEN

T POLICY

ANALYSIS



6.1 INTRODUCTION

As the sector is open for both private and public players there are huge number of players

in the market which requires a proper picturing of rules and regulation to play a fair

game. India has been very strong in case of rules and regulation; it has created body likeDOT, TRAI, DTS who takes care of the rules and regulation. Apart from them it keeps

issuing policy and act which checks the events happening in the industry. The

government has been issuing policy like Broadband Policy 2004, new telecom

policy1999, National Telecom Policy 1994. There are more agencies like ITU, TDSA,

TCIL, ICSIL, and MCOCA, which helped it regulating their work. With increasing

number of players in market the government and its agencies have to function more

carefully.

6.2 GOVERNMENT REGULATION

6.1.1 Department of Telecommunications

Until October 2000, the Department of Telecommunication (DOT) was the authority in

granting licences and service provision. It also operated domestic basic telephone

services throughout India. The policy making functions and the service providing

function were segregated into two different entities during 2000.The two service

providing department of telecom sector were corporatized-the department of telecom

service and the department of telecom operation . The state owned corporation BSNL

took over all service providing functions of these two departments.

6.1.2 National telecom policy, 1994

The new economic policy adopted by the Government aims at improving India's

competitiveness in the global market and rapid growth of exports. Another element of the

new economic policy is attracting foreign direct investment and stimulating domestic

investment. Telecommunication services of world class quality are necessary for the

success of this policy. It is, therefore, necessary to give the highest priority to thedevelopment of telecom services in the country.

Objective



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6.1.4 New telecom policy, 1999

Objectives and targets of the new telecom policy, 1999

1. Access to telecommunications is of utmost importance for achievement of the

country's social and economic goals. Availability of affordable and effective

communications for the citizens is at the core of the vision and goal of the

telecom policy.

2. Strive to provide a balance between the provision of universal service to all

uncovered areas, including the rural areas, and the provision of high-level

services capable of meeting the needs of the country's economy

3. Encourage development of telecommunication facilities in remote, hilly and tribalareas of the country.

4. Create a modern and efficient telecommunications infrastructure taking into

account the convergence of IT, media, telecom and consumer electronics and

thereby propel India into becoming an IT superpower

5. Convert PCO's, wherever justified, into Public Teleinfo centers having

multimedia capability like ISDN services, remote database access, government

and community information systems etc.

6. Transform in a time bound manner, the telecommunications sector to a greater

competitive environment in both urban and rural areas providing equal

opportunities and level playing field for all players

7. Strengthen research and development efforts in the country and provide an

impetus to build world-class manufacturing capabilities

8. Achieve efficiency and transparency in spectrum management

9. Protect defense and security interests of the country

10. Enable Indian Telecom Companies to become truly global players



6.1.5 Broadband Policy, 2004

Preamble

Recognizing the potential of ubiquitous Broadband service in growth of GDP and

enhancement in quality of life through societal applications including tele-education,

tele-medicine, e-governance, entertainment as well as employment generation by way of

high speed access to information and web-based communication, Government have

finalized a policy to accelerate the growth of Broadband services.

Demand for Broadband is primarily conditioned and driven by Internet and PC

penetration. It is recognized that the current level of Internet and Broadband access in

the country is low as compared to many Asian countries. Penetration of Broadband,

Internet and Personal Computer (PC) in the country was 0.02%, 0.4% and 0.8%

respectively at the end of December, 2003. Currently, high speed Internet access isavailable at various speeds from 64 kilobits per second (kbps) onwards and presently an

always-on high speed Internet access at 128 kbps is considered as ‘Broadband'. There are

no uniform standards for Broadband connectivity and various countries follow various

standards.

6.1.6 Administration and Control on Telecom

Industry

The Telecom Commission, set up in April 1989, has the administrative and financial

powers of the Government of India to deal with various aspects of telecommunications.

The Commission and the Department of Telecommunications (DOT) are responsible,

inter alia, for policy formulation, licensing, wireless spectrum management,

administrative monitoring and control of the Public Sector Undertakings

(PSUs) engaged in telecommunication services, research and development,

standardization/validation of equipment. In addition to the Telecom Commission,

other Government organizations engaged in the telecom sector (as a part of

DOT) are the Centre for Development of Telematics (CDOT), the TelecomEngineering Centre (TEC) and the Wireless Planning and Coordination (WPC) wing.

CDOT was established in 1984 with the objective of developing a new generation of

digital switching items. It has developed a wide range of switching and transmission

products both for rural and urban applications. TEC is devoted to product validation and

standardization for user agencies. It also provides technical and engineering support to



the Telecom Commission and the field units. The Wireless Planning and Coordination

wing deals with the policies of Spectrum management, licensing, frequency

assignments, international coordination for spectrum management and administration of

the Indian Wireless Telegraphy Act, 1933. In order to administer the use of radio

frequencies, the licenses/renewals for use of wireless equipment and the frequencies are

authorized by WPC. The licenses are granted for specific periods on payment of

prescribed license fees and royalty in advance and are renewed after expiry of the

validity periods.

6.1.7 Telecom Reforms

As a part of the continuing process of telecom reforms and in pursuance of the New

Telecom Policy 1999 (NTP-99), the Department of Telecom Services (DTS) and the

Department of Telecom Operations (DTO) were carved out from DOT in October 1999

for providing telecommunication services in the country. DTS and DTO were finallycorporatized into a wholly owned Government Company namely, the Bharat Sanchar

Nigam Limited (BSNL) (incorporated on 15 September 2000) and their business was

transferred to this Company with effect from 1 October 2000. The creation of BSNL was

expected to provide a level playing field in all areas of telecom services, between

Government operators and private operators.

6.1.8 Regulatory Control

The entry of private service providers in 1992 brought with it the inevitable need for

independent regulation. The Telecom Regulatory Authority of India (TRAI) was thus

established with effect from 20 February 1997 by an Act of Parliament, called the

Telecom Regulatory Authority of India Act, 1997, to regulate telecom services, including

fixation/revision of tariffs for telecom services, which were earlier vested in the Central

Government. The TRAI Act was amended by an ordinance, effective from 24 January

2000, establishing a Telecommunications Dispute Settlement and Appellate Tribunal

(TDSAT) to take over the adjudicatory and disputes functions from TRAI. TDSAT was

set up to adjudicate any dispute between a licensor and a licensee, between two or more

service providers, between a service provider and a group of consumers, and to hear and

dispose of appeals against any direction, decision or order of TRAI.

6.1.9 Other Government Organizations in the

Telecom Sector

Besides MTNL and BSNL, other public sector undertakings in the telecom sector are ITI

Limited (ITI), Telecommunications Consultants India Limited (TCIL), Intelligent



Communication Systems India Limited (ICSIL) and Millennium Telecom Limited

(MTL). ITI Limited was formed in 1948 for manufacturing a wide range of

equipment, which included electronic switching equipment, transmission equipment

and telephone instruments of various types. TCIL was established in 1978 for providing

know-how in all fields of telecommunications at the global level. The core competence

of TCIL is in communications network projects, software support, switching and

transmission systems, cellular services, rural telecommunications and optical fiber based

backbone network. ICSIL was established in April 1987 for manufacturing computer

based communication systems and equipment. It also provides engineering, technical and

management consultancy services for computers and communication systems in India

and abroad. MTNL was established in February 2000 as a wholly owned subsidiary

of MTNL for providing internet services in the country. It is pursuing the establishment

of broadband internet access for the corporate segment and Voice over Internet Protocol

(VOIP) telephony services throughout India with the use of relevant technologies like

Very Small Aperture Terminals (VSATs).

6.1.10 Regulatory and policy issue of telecom

industry

Indian telecom sector is witnessing an unprecedented growth of its time. The same is

expected to increase in future as well. This is necessitating action on the fronts of

infrastructure development and suitable legislative and regulatory reforms in the field of

Information and Communication Technology (ICT) at large. Convergence laws in India

are in the process of formulation and so are policy related matters. Though the

Communication Convergence Bill, 2001 has been formulated, it seems not to have been

notified yet. The Bill is intended to promote, facilitate and develop in an orderly manner

the carriage and content of communications (including broadcasting, telecommunications

and multimedia), for the establishment of an autonomous Commission to regulate

carriage of all forms of communications, for establishment of an Appellate Tribunal and

to provide for matters connected therewith or incidental thereto, to facilitate development

of a national infrastructure for an information based society, and to enable access thereto,

to provide a choice of services to the people with a view to promoting plurality of news,

views and information, to establish a regulatory framework for carriage and content of

communications in the scenario of convergence of telecommunications, broadcasting,data-communication, multimedia and other related technologies and services, to provide

for the powers, procedures and functions of a single regulatory and licensing authority

and of the Appellate Tribunal, etc.



6.1.11 Norms for M&A Between Telecommunication

Companies

The government has revised norms and regulations for merging & acquisition (M&A)

between telecommunication companies within a same circle. Declaring the guidelines

and regulations, the Department of Telecommunication (DoT) said that prior approval for

merger of telecommunication companies is necessary. It is emphasize that the total

market share after merging should not exceed to more than 40% in terms of both

subscriber base and revenue. Prior it was held at 67 per cent. It has been made clear that

no merger would be allowed unless and until there are minimum four service providers

left after such merging process.

The government's revised norms and regulations concerning to merger has tightened themerging and acquisitions between telecommunication companies in the circle. From now

consolidation between telecommunication companies within same circle would have

means facing difficulty and high cost also. Idea has recently acquired license only for 9

circles. Therefore, it is not possible for an existing licensee to get the Idea in these nine

circles. Similarly other licensees if they want to sell, needs to search for some other suitor

which should be outside the purview of group of licensed operators in their circles. This

new step from the government side has opened up a new gateway for new players, which

would have till now facing lots of troubles in absence of any license.

The new government regulations are more stringent and left less room for air to pass.Less flexibility is allowed while designing all four phases - for any merging pre consent

of government is required to take, the market share of merging entity beyond which any

merging will not be allowed, has been brought down from 67% to 40%, before

contemplating any merging process it is imperative that the license must go from through

3 years of operation and last the merged entity is required to pay extra amount for every

spectrum.

The new norms issued are somewhere deviated from the TRAI's regulations. The TRAI

had ruled out merging and acquisition procedure unless and until rollout

recommendations were not full filled. But in the revised guidelines issued by government

for merging process, nothing has been mention in respect of rollout obligations. It is kept

silent for it. Now a clause has been inserted which have made license operation of three

years obligatory. In new guidelines issued by the government 'acquisition' word has been

dropped. The removal in the recent issued guidelines will somewhere create ambiguity to

the extent that it will not be clear as whether these norms are specifically for merger or

acquisition.



The regulations are looking as a pill of relief for new entrants. As now they can bring

strategic investors, which means they can sell maximum 74% stake to all those new

global companies or domestic entities which are keen to make entry into the India's

fastest growing telecommunication sector. Earlier existing telecommunication players

purchased new entrants for reducing spectrum crunch. But now all new entrants who

have received license in recent years can be merged or purchased by others only after

January 2011.

The new issued guideline also makes it clear that ‘merger of licenses shall be restricted to

the same service area’. It means if an operator has its services only in eastern regions it

can't undergone into merging process with another telecommunication company who is

offering services only in Himachal Pradesh and Punjab. Further it clears that no buoyant

or merging process can be taken place among top 3 service providers. It makes clear that

as long as these new norms are into operation, Vodafone can never be able to purchase

Bharti or Reliance and vice versa, nor can ever the Idea Cellular purchase Vodafone.

However, such big companies- Reliance, Bharti, Vodafone, and Idea Cellular can

purchase small players like Spice.

The DoT also explicitly mentioned out that the spectrum transfer charges are needed to

be pay in case of any merging between existing telecommunication companies. The

amount which will be paid is decided by government. However, if number of service

providers falls below 4 in circle during process then no merging will take place.

The government's motto behind issuing new principles and guidelines is to ensure that

one of the fastest growing telecommunication sectors in near future will continually to

have more than 8 operators in circles. This step in turns bolsters competition and helps in

earning more bucks. It will also lead to optimum utilization of resources.

6.2. IMPORTANT REGULATIONS AND THEIR

IMPACT ON THE INDIAN TELECOMINDUSTRY

6.2.1 Unified Access Service License Regime

(UASL)



Unified licensing marked the end of the license regime in the Indian telecom industry. It

helped in aligning convergent technologies and services. The establishment of the

Unified Access Licensing Regime (2003) eliminated the need for different licenses for

different services. Players are now allowed to offer both mobile and fixed-line services

under a single license after paying an additional entry fee. This does not take into account

national and international long-distance services and Internet access services.

6.2.2 Access Deficit Charges (ADC)

ADC makes it mandatory for a service provider at the caller’s end to share a percent of

the revenue earned with the service provider at the receiver’s end in long-distance

telephony. This subsidises the infrastructure costs of the service provider enabling access

at receiver’s end, especially because rental for fixed-line services is low. Revision in the

ADC regime is expected to be followed by further tariff reduction in telecom services.

Figure: 6.1 Year wise cellular tariff and no. of subscribers

6.2.3 Access Deficit Charges (ADC)

ADC makes it mandatory for a service provider at the caller’s end to share a percent of

the revenue earned with the service provider at the receiver’s end in long-distance

telephony. This subsidises the infrastructure costs of the service provider enabling access



at receiver’s end, especially because rental for fixed-line services is low. Revision in the

ADC regime is expected to be followed by further tariff reduction in telecom services.

6.3 CONCLUSION

We saw various agencies and acts passed by Indian government to regulate the industry.

The government has to be rigid and cautious as the global players enter into the market.

The increasing number of services provided by telecom sectors call for additional

attention. The government has been doing excellent job in maintaining a harmony

between public and private players but still has a long way to go. The step taken by

government towards the 3G allocation shows how effectively it can operate.



Chapter 7

ECONOMIC

FACTORS AND

ITS



IMPLICATION

S

7.1 INTRODUCTION

This chapter gives us an overview about the various measures taken by the government

of India to bring in more FDI in to telecommunication sector. The government wants to

bring in advanced technology and more capital in the telecommunication sector and

hence has increased the FDI cap to 74%. The telecommunication sector has provided

employment opportunities to various skilled and unskilled workers directly or indirectly.

The telecommunication sector has contributed to the growth of GDP and also to the

growth of Capital markets. There are stocks like which form the BSE -30 share index.

These factors provide an economic overview of the economy and have an impact on the

growth of the sector and the country as a whole.

7.2 INVESTMENTSOne of the most significant contributors to India’s booming economy is the development

of the services sector and the focus of Foreign Direct Investment in the

Telecommunication sector. Over the past two decades, the service sector has expanded

rapidly and has come to play an increasingly important role in national economies and in

the international economy. The structure of Foreign Direct Investment (FDI) worldwide



has also shifted towards services. In the early 1970s, service sector accounted for only

one quarter of the world FDI stock. In 1990 this shares was less than one half and by

2003, it has risen to about 67 per cent. Now service sectors like telecommunication, IT

enabled services, electricity insurance, air transport are becoming prominent.

Since the introduction of `Manmohanomics’ during PV Narasimha Rao’s government in

1991, Foreign Direct Investment (FDI) has been looked upon as a tool to transform under

developed countries into advanced nations. Since then every government has encouraged

the expansion of foreign direct investment.

The liberalization measures post-1990 has changed with foreign investments radically,

now portfolio as well as Foreign Direct Investment are not only allowed but also actively

encouraged. Initially Foreign Direct investment was introduced only in a few sectors but

since then it has been introduced in a variety of sectors including the sector of Telecommunications. There are multi-faceted advantages of encouraging foreign direct

investment in telecom sector. Apart from ensuring telecom services at subsidized prices,

it can satisfy the dire need of infrastructural reforms in rural areas. The inflows will allow

multiple benefits such as technology transfer, market access, improvement in voice and

data quality and organizational skills. It increases the flow of foreign currency and helps

in maintaining harmonious relationship with the country from which the investment is

made. Moreover, India offers an unprecedented opportunity for telecom service

operators, infrastructure vendors, manufacturers and associated services companies.

When the Indian government opened up cellular telephony to private industry, several

foreign investors were ready to enter India’s telecom sector. However beating other

manufacturing and services sectors, Indian telecom had attracted major inflow of FDI

since August 1991. According to the numbers published by Investindiatelecom (an online

agency which tracks developments in the Indian telecom sector), Indian telecom has

grossed actual FDI worth Rs 9576.40 crores during the period starting from late 1991 to

early 2003. Of the total FDI inflow in Indian telecom sector, the major share has gone

towards investment in holding companies followed by cellular network and

manufacturing and consultancy.

While Hutchison Whampoa has a 49 per cent stake in Hutchison telecom, Vodafone has

21 per cent in RPG cellular and Verizon has ten percent stake in Reliance telecom. Other

foreign companies with similar stake in Indian companies include AT&T Wireless,

Cellnet and First Pacific.



Recently, there has been a hike in the Foreign Direct Investment in the telecom sector

and it has been increased from 49% to 74 %. This move seems to be positive for the

sector, as it requires investments of Rs 700 –900 million over the next 5 years. FDI

inflow by 2004 was 9950.94 cores in telecom. Countries like Europe, Korea, and Japan

telecom are likely to enter India, as India is seen as fastest growing telecom market in

world. The increase in the FDI limit is expected to usher in a 20 per cent jump in foreign

investments in the telecom sector within the next two years from the current Rs10, 000

crores.

There are restrictions related to remote access, transfer of network information outside

India and international transit routing of Indian traffic. It has been decided to enhance the

FDI in telecom services in areas like basic telecom, cellular unified access services, Nat

/intranet, long distance Vast, public mobile, radio service & gmdcs. DOT will have the

authority to restrict the license company from operating in any of the sensitive areas of

the country. Foreign portfolio investments will be allowed in existing news channels

within an existing 26 per cent cap on foreign investment holdings for that sector. This

comes in time when there is a boom in the Indian stock markets as well and in the

consumers section. This would clearly go on to attract several players in the telecom

sector globally to look forward to investing in India. The highlights of the new policy are

that Foreign Direct Investment up to 74% is permitted in the telecom sector. Internet

service (with gateways); infrastructure providers (category-II); radio paging service etc.

have been made subject to licensing and security requirements. FDI up to 100%

permitted in respect of the following telecom services: Internet Service Providers not

providing gateways, Electronic mail, Voice mail, Infrastructure providers providing dark fibre. FDI up to 100% is allowed subject to the stipulation that all such companies would

confirm to divest 26% of their equity in favour of the Indian public within five years, if

these companies are listed in other parts of the world. The above services would be

subject to licensing and security requirements, wherever required. This increase in the

FDI limit would see a sea change of investment flowing into India, and have a

magnanimous effect on the telecom sector by way of economic reforms and also would

affect the economy as a whole, and would have a chain effect on various other sectors.

Due to the increase in the foreign direct investment in the telecommunication market inIndia companies like Bharti Tele-Ventures and Hutchison Essar will be able to modulate

the foreign stakes in their companies that have already acquired a range between 67-69

percent of their assets. With respect to the unnerving growth in the telecom industry in

India which accounted for nearly 30 percent every year, the Union Cabinet decided for

the hike in foreign direct investment as it will benefit the country by facilitating the

capital inflows in the industry. As of now acquires the largest share in the Indian telecom



market has been acquired by the mobile segment as it has been estimated to witness a

double rise in the past 2 years.

The 74 shares occupied by the Indian telecommunication industry would involve all the

foreign direct investments that have mainly come from the non-residential Indians,foreign currency convertible bonds, foreign institutional investors, convertible preference

shares, and depository receipts on a direct and indirect basis. The step taken for the

increase in the FDI in Indian telecom industry will boost up the country's economic

condition. Post 1991 one of the major contributors in the accretion of India's economy is

Foreign Direct Investment and thereby it has been highly needed by each sector in Indian

telecommunications industry. As of now the telecom sector requires 1, 60,000 crores for

development purposes among which 30,000 is coming from the local markets.

FDI in services responds well to openness especially when it comes to thetelecommunications sector. This is quite evident looking at the recent boom in the Indian

Telecommunication sector. Further liberalization of services involves potential

advantages for Indian economy. Benefits can arise from increased competition, lower

prices, and better quality of services. FDI in services like Telecommunications provide

key inputs to other productive activities that lead to further investment and

competitiveness of an economy. Efforts should be made towards attracting efficiency

seeking FDI through a right policy that expands operation, improve local skills, establish

linkages and upgrade technology

However, precautions should be taken to avoid the risk of foreign investors out-

competing domestic investors especially in case of infrastructure services like

Telecommunications. Services where domestic investors are not able to cater to the

growing demand, or where domestic service-providers do not have the ability or capacity

to provide the required quality of services, are where the least barriers exist.

To circumvent such spirals it is important for the region to have appropriate domestic

regulations in place, which will assure better quality of services at affordable prices.

Clear domestic regulations increase transparency in the system and encourage foreigndirect investment. To sustain the momentum of growth in services trade in the region,

conscious efforts should be made to improve the competitive advantage of the region as a

whole. Inclusion of trade in services in SAFTA may help attract FDI in services and lead

to greater intra-regional trade. Access to more efficient services could lead to higher

growth in productivity in other sectors, which, in turn, could improve the overall

competitive strength of the region.



Thus it can be concluded that the recent upward swing in the Telecommunications sector

in India is due to the introduction of FDI in this sector by the Indian Government since

1991 but at the same time we must also be careful and not get carried away by this

development and should have proper regulations in place to actually utilize this situationto our advantage.

7.3 FOREIGN DIRECT INVESTMENT

7.3.1 FDI Policy

FDI Policy for the Telecom is as under:-

Table: 7.1 FDI Policy for different telecom sectors

S

l.no.

Sector/Activity FDI Cap/Equity Entry

route

Other Conditions Relevant

Press Note

1. Basic and cellular,

Unified Access

Services,

National/Internation

al Long Distance, V-

74% (including

FDI, FII, NRI,

FCCBs, ADRs,

GDRs,

convertible

Automatic

upto 49%.

Subject to

guidelines notified

in the Press Note

No. 3 (2007 Series)

PN 3/2007

http://siadipp.nic.in/policy/changes/pn3_2007.pdf





Sat, Public Mobile

Radio Trunked

Services (PMRTS)

Global Mobile

Personal

Communications

Services (GMPCS)

and other value

added telecom

services

preference shares,

and proportionate

foreign equity in

Indian

promoters/Investi

ng Company)

FIPB

beyond

49%.

2. ISP with gateways,

radio-paging, end-

to-end bandwidth.

74% Automatic

upto 49%

FIPB

beyond

49%

Subject to licensing

and security

requirementsnotified by the

Department of

Telecommunication

s. www.dot.gov.in

PN 4

/2001

3. a) ISP without

gateway, *

b) Infrastructure

provider providing

dark fibre, right of

way, duct space,

tower( Category –I);

c) Electronic mailand voice mail

100% Automatic

upto 49%

FIPB

beyond

49%

Subject to the

condition that such

companies shall

divest 26% of their equity in favour of

Indian public in 5

years, if these

companies are

listed in other parts

of the world. Also

subject to licensing

and security

requirements,

where required.

www.dot.gov.in

PN 9/ 2000

and PN

2/2007

4. Manufacture of

telecom equipments

100% Automatic Subject to sectoral

requirements.

PN 2 / 2000

http://siadipp.nic.in/policy/changes/press4_01.htm


http://www.dotindia.com/





http://www.dot.gov.in/







http://www.dotindia.com/










7.3.2 Incentives for Telecom Sector



Incentives to Promote Telecom Equipments Manufacturing

• Custom duty on ITA-I product reduced to zero w.e.f. 01.03.2005.

• 4% additional duty on import of ITA products to countervail the state level taxes.

• No industrial licence for manufacturing of telecom equipment. Simple Industrial

Entrepreneur Memorandum (IEM) has to be filed with SIA.

• 100% Foreign Direct Investment (FDI) through automatic route.

• Fully repatriable dividend income and capital invested.

• Payment of technical know-how fee of up to US$ 2 million and royalty up to 5%

on domestic sales and 8% on export sales, net of taxes, through automatic route.

• Imposition of additional import duty, at the rate not exceeding 4% ad-valorem, to

countervail sales tax, value added tax, local taxes and other charges leviable onlike goods on their sale or purchase or transportation in India

• Promotion of telecom product specific SEZs.

• Modification of Electronic Hardware technology Park (EHTP)/Special Economic

Zones (SEZs) scheme to allow 100% sales in the Domestic Tariff Area (DTA) for

the purpose of meeting export obligations.

Incentives for Promotion of Service Sectors

• Any undertaking which has started or starts providing telecommunication services

whether basic or cellular, including radio paging domestic satellite service,

network of trunking, broadband network and internet services on or after the 1 st

day of April, 1995, but on or before the 31 st day of March 2005, will be allowed in

computing the total income, a deduction of, an amount equal to hundred percent of

profits and gains derived from such business for ten consecutive assessment years.

• Import of specified telecom equipment (ITA1 Products) is permitted at zero

customs duty rates.

• Import of all capital goods for manufacturing telecom equipment does not require

any license.

Incentives for Exporters

• 10 year income tax holiday for EOU/EPZ/STP/EHTP units.

•Export income is exempt from income tax for all exporters.



(In Millions)

Year (April-March)

FDI in Rs.

FDI in US$

2000-01

7,841.59

177.69

2001-02

39,384.61

873.23

2002-03

9,077.31

191.60

2003-04

5,139.21

111.72

2004-05

5,695.38

124.53

2005-06

27,759.53

623.55



Table: 7.3 Actual Inflow of FDI in Telecom Sector Country -wise(from January 2000 to August 2008)



34

South Africa

6.82

0.15

0

35

Spain

1,589.70

36.29

0.88

36

Sri Lanka

4.73

0.1

0

37

Sweden

650

15.12

0.36

38

Switzerland

274.45

6.12

0.15

39

Taiwan

35.2

0.8

0.02

40

Thailand

735.12

17.10.41

41

U.A.E.

1,160.61

25.51

0.64

42

U.K.2,959.04



Table: 7.4 Actual Inflow of FDI in Telecom Sector -

Sector-wise as on August, 2008



(Amount in Million)

S. No.

Service/Item

In Rs.

In US$

%age

1

Telecommunications

117,325.41

2,684.24

64.41

2

Radio Paging Service

113.92

2.53

0.06

3

Cellular Mobile/Basic Telephone Services

61,290.58

1,433.72

33.65



7.3.3 Major Investments

The booming domestic telecom market has been attracting huge amounts of investment

which is likely to accelerate with the entry of new players and launch of new services.

Buoyed by the rapid surge in the subscriber base, huge investments are being made into

this industry.

• Norway-based telecom operator Telenor has bought a 60 per cent stake in Unitech

Wireless for US$ 1.23 billion.

• Japanese telecom major NTT DoCoMo has acquired a 27.31 per cent equity

capital of Tata Teleservices for about US$ 2.6 billion and a 20.25 per cent stake in

Tata Teleservices (Maharashtra) Ltd for about US$ 190.23 million.

• Singapore Telecommunications (SingTel), which has a 31 per cent stake in Bharti

Airtel, has received the government’s approval to offer long distance services inIndia, according to a communication ministry official.

• Mauritius-based P5 Asia Holding Investments (Mauritius) Ltd will be investing

around US$ 545.13 million to hold a 20 per cent stake in Aditya Birla Telecom

Ltd (ABTL). The funds will be utilised for network rollout and operations of

ABTL in the Bihar circle.

• Bharat Sanchar Nigam Ltd (BSNL) is planning an investment of around US$

201.5 million in the Tamil Nadu Circle for an additional 23 lakhs mobile

connections under both 2G and 3G technologies by 2009.

• The latest to join the world's second largest telecom market is Bahrain's Batelco

which has signed a deal to buy 49 per cent in Chennai-based S-Tel, a GSMservice provider, for $225 million.

• Etisalat, a Gulf-based telecommunications company has picked up a 45 per cent

stake in Swan Telecom.

• Kaveri Telecom Products Limited is planning to set up a new subsidiary - Kaveri

Telecom Infrastructure Limited (KTIL) - with an investment of US$ 20.11 million

over the next two years, to offer in-building telecom infrastructure to telecom

service providers.

• Juniper Networks, which is the second-largest maker of networking equipment,

plans to invest US$ 400 million in India, over the next five years, with a focus on

its research and development (R&D) activity.

• BSNL, India's leading telecom company in revenue terms, will put in about US$

1.16 billion in its WiMax project.

• Bharti Airtel will be spending US$ 2.5 billion in a major expansion bid.

• Reliance Communication has committed US$ 5.69 billion as capital investment

for the fiscal year ending March 2009.



• Idea Cellular will spend about US$ 2.36 billion in the fiscal ending March 2009.

• Srei Group's Quippo Telecom Infrastructure Ltd (QTIL) plans to invest US$ 3

billion in 2008-09 to ramp up its telecom infrastructure business to grow both

organically and inorganically.

• Vodafone Essar will invest US$ 6 billion over the next three years in a bid to

increase its mobile subscriber base from 40 million at present to over 100 million.

• Telecom service provider, Tata Teleservices Limited, has announced that the

company will be investing additional US$ 6.74 million in Gujarat to set up 100

cell sites by August 2009. The company had earlier made an announcement of

investing US$ 24.1 million in the state till March 2009.

Telecom operator Aircel, which launched GSM mobile services in Bangalore on

February 23, 2009, plans to invest US$ 220.58 million over the next year to set up base

stations across the state.

Investments Abroad

After the amazing growth story in the domestic market, Indian telecommunication

companies are now set to have a major global footprint.

• The Bharti Group, which already has operations in Seychelles, (begun over a

decade ago), and in the Channel Islands in Europe, launched its mobile services in

Sri Lanka under 'Airtel' brand on January 12, 2009. Airtel is expected to invest

about US$ 200 million in setting up and expanding its operation in Sri Lanka over

the next five years. The company will simultaneously roll out second generation

(2G) and third generation (3G) services in the country.

• Tata Communications has bought the 30 per cent stake in Neotel that was

previously held by Eskom and Transnet. With this, Tata Communications in

association with Tata Africa Holdings became the largest stakeholder with 56 per

cent stake.

• Tata Communications marked its entry into UAE by launching a range of dedicated Ethernet services in association with leading telecommunication service

provider of UAE, Etisalat.

7.4 CAPITAL MARKET

Table: 7.5 Capital Market data



Year End Equity Gr. Blk Div% B.V Rs EPS Rs. Price Price

Date

52 W

- H

52 W

- L

Mkt. Cap. P/E P/BV

Bharti Airtel 200803 1,898.24 28,115.65 0 106.3 32.6 571 3/19/2009 950 484 108,465.40 18 5.37

HFCL Infotel 200803 525.52 1,355.28 0 -7.1 0 8 3/19/2009 23 6 416.21 0 -1.13

Idea Cellular 200803 3,100.09 13,888.89 0 35 3.2 46 3/19/2009 114 34 14,151.91 14 1.31

M T N L 200803 630 15,842.58 40 189.2 9 65 3/19/2009 116 52 4,076.10 7.2 0.34

Reliance Comm 200803 1,032.01 21,576.32 15 120.3 12.4 157 3/19/2009 609 131 32,322.55 13 1.31

Spice Comm 200812 689.92 2,665.54 0 -2 0 63 3/19/2009 95 23 4,360.29 0 -31.5

Tata Tele Mah 200803 1,897.19 4,524.71 0 -1 0 23 3/19/2009 38 13 4,297.14 0 -23

Full Year (Rs Cr.) Price Information

Name

The telecom sector consists of the above few companies that are listed on the Stock

Exchange, of which Bharti Airtel and Reliance Communications are among the Top 30

Companies.

• The prices of all the companies have been fluctuation over a period of time due to

sell by foreign Institutional Investors, bringing the prices to share to its lowestlevels.

• Bharti Airtel and Reliance Communications are the two scripts that have been

traded the most.

• The Market Capitalization of Bharti Airtel and Reliance Communications is the

highest among the telecom players as there are more number of shares

outstanding in the market.

• The Share capital is the highest for Idea Cellular and Bharti Airtel among all the

players in the market.

7.5 GDP

The current global financial crisis is, of course, now one of the major constraints on the

pace of economic reform, but the Indian telecom sector, because of its innate strength andresilience, is perhaps one of the few sectors that have remained almost unaffected by this

adverse global trend,"

The telecom sector, which clocked a 42.2% growth in the quarter ended September, has

emerged as a big contributor to the GDP growth.



High growth rate in this sector - with weight of less than 3% in GDP - was a key driver

which pushed GDP figures for the quarter ended September to 7.6%," Companies reflect

the confidence, and the sector will continue its growth story remain unscathed by the

global financial turmoil.

The telecom sector's potential in India remains under-tapped and growth rate in tele-

density, especially in rural India, will remain robust.

"Telecommunications contribution to the GDP growth rate will further increase in the

coming quarters,"

The telecom sector is expected to perform even better; its contribution to the nation's

GDP is expected to increase from 2% in 2006 to an estimated 3.6 per cent in 2010.

7.6 Labour Market

With telecom sector booming, career in the industry is very lucrative. The career path to

the leading companies goes via telecom engineering. The telecom sector offers a varietyof career options.

With the coming of more and more projects, the telecom industry is going for high scale

recruitments. There is a huge demand for software engineers, mobile analysts, and

hardware engineers for mobile handsets. Besides, there are ample opportunities for

marketing people whose services are required to capture more and more customer base.

The new projects, setting up of new service bases, expansion of coverage areas, network

installations, maintenance, etc are providing more and more employment opportunities in

the telecom sector. With the boom of e-business & voice data convergence for IP, thedemand for telecom service is growing fast.

Telecom offers unlimited opportunities & possibilities in the present and future. The

Telecom sector is fast advancing globally by introducing advanced technologies and

solutions to the world markets.



The sector will need up to 1, 50,000 additional hands in 2009. While new players are

launching operations, existing ones are beginning to scale up. Now that the government

has issued 120 new licences, telecom industry officials fear a talent crunch that could

push salaries in core operations by up to 30% in the next few quarters.

Conservative estimates put the demand from new players at one lakh people in the first

phase. With rolling out of 3G and Wimax, existing players will need another 50,000

people.

Most of the new players would be looking for experienced hands, so getting people in

such large numbers will be a great challenge. Currently, the sector directly employs about

1, 50,000 people, while providing jobs to another 1.5 million with retail outlets, prepaid

card sellers and tower constructors.

And now with most telecom players expanding in the rural markets, the demand for

manpower is expected to go up further. “The new players will have to attract talent by

offering 15-20% higher salaries.

Figure: 7.1 Employment Potential of Indian telecom industry



7.7 CONCLUSION

The above factors have played a significant role in the growth of the Indian economy and

shall contribute to the growth in the future as well. With the increased FDI cap, new and

better technology will be available to the Indian users and have a better access to the

world.



Chapter 8

ANALYTICAL FRAMEWOR

K



8.1 INTRODUCTION

In the third section we have analyzed in detail the entire telecom industry sector. There

only we have laid the background for analysing the analytical framework for the telecom

industry. Here we will carry out the Porter’s five forces analysis and SWOT analysis for

the telecom industry. We will also carry out the ratio analysis of the telecom industry as a

whole to find the financial performance of the industry and compare it with that of

different companies.

8.2 PORTER’S FIVE FORCES

There is continuing interest in the study of the forces that impact on an organisation or an

industry, particularly those that can be harnessed to provide competitive advantage. The

ideas and models which emerged during the period from 1979 to the mid-1980s (Porter,

1998) were based on the idea that competitive advantage came from the ability to earn a

return on investment that was better than the average for the industry sector (Thurlby,

1998).

As Porter's 5 Forces analysis deals with factors outside an industry that influence the

nature of competition within it, the forces inside the industry (microenvironment) that

influence the way in which firms compete, and so the industry’s likely profitability is

conducted in Porter’s five forces model. A business has to understand the dynamics of its

industries and markets in order to compete effectively in the marketplace. Porter (1980)

defined the forces which drive competition, contending that the competitive environment

is created by the interaction of five different forces acting on a business. In addition to

rivalry among existing firms and the threat of new entrants into the market, there are also

the forces of supplier power, the power of the buyers, and the threat of substitute

products or services. Porter suggested that the intensity of competition is determined by

the relative strengths of these forces.

The nature of competition in an industry is strongly affected by suggested five forces.

The stronger the power of buyers and suppliers, and the stronger the threats of entry and

substitution, the more intense competition is likely to be within the industry. However,

these five factors are not the only ones that determine how firms in an industry will



compete – the structure of the industry itself may play an important role. Indeed, the

whole five-forces framework is based on an economic theory know as the “Structure-

Conduct-Performance” (SCP) model: the structure of an industry determines

organizations’ competitive behaviour (conduct), which in turn determines their

profitability (performance). In concentrated industries, according to this model,

organizations would be expected to compete less fiercely, and make higher profits, than

in fragmented ones.

Main Aspects of Porter’s Five Forces Analysis

The original competitive forces model, as proposed by Porter, identified five forces

which would impact on an organization’s behaviour in a competitive market. These

include the following:

• The rivalry between existing sellers in the market

• The power exerted by the customers in the market

• The impact of the suppliers on the sellers

• The potential threat of new sellers entering the market

• The threat of substitute products becoming available in the market



Understanding the nature of each of these forces gives organizations the necessary

insights to enable them to formulate the appropriate strategies to be successful in their

market (Thurlby, 1998). We will examine these concepts as described by Porter’s 5 force

model and as applied to Indian telecom industry simultaneously.

8.2.1 Force 1: The Degree of Rivalry

The intensity of rivalry, which is the most obvious of the five forces in an industry, helps

determine the extent to which the value created by an industry will be dissipated through

head-to-head competition. The most valuable contribution of Porter's “five forces”

framework in this issue may be its suggestion that rivalry, while important, is only one of

several forces that determine industry attractiveness.

• This force is located at the centre of the diagram

• Is most likely to be high in those industries where there is a threat of

substitute products; and existing power of suppliers and buyers in the market

Now let us understand the implication of degree of revelry in Indian telecom sector. The

dimensions of this parameter are determined by:

High Exit Barriers: In any industry, if the exit barrier is high it increases the difficulty

of any organization to leave the industry sector. So it makes any difficult to any willing to

leave company to leave the industry. The telecom industry suffers from high exit barriers,

mainly due to its specialized equipment. Networks and billing systems cannot really beused for much else, and their swift obsolescence makes liquidation pretty difficult.

High Fixed Cost: The industry also suffers from high fixed cost which makes the entry

barrier also very high for the industry. It comes as no surprise that in the capital-intensive

telecom industry the biggest barrier to entry is access to finance. To cover high fixed

costs, serious contenders typically require a lot of cash. When capital markets are

generous, the threat of competitive entrants escalates. When financing opportunities are

less readily available, the pace of entry slows. Meanwhile, ownership of a telecom

license can represent a huge barrier to entry.

• 6-7 players in each region

• 3 out of 4 BIG-Four present in each region

http://www.investopedia.com/terms/l/liquidation.asp

http://www.investopedia.com/terms/l/liquidation.asp



Very less time to gain advantage by an innovation: Every company in this industrial

sector in investing a huge amount in research and development and marketing strategy.

That is why we see any offer launched by any company is counter attacked by other

companies very soon. This makes the industry rivalry most prominent.

Eg. Caller tunes, life time card

Price wars: The price war is really very fierce in this industry. Price war in telecom

industry has commoditized the market that branding has taken a backseat.

8.2.2 Force 2: The Threat of New Entrants

Both potential and existing competitors influence average industry profitability. The

threat of new entrants is usually based on the market entry barriers. They can take diverse

forms and are used to prevent an influx of firms into an industry whenever profits,

adjusted for the cost of capital, rise above zero. In contrast, entry barriers exist whenever it is difficult or not economically feasible for an outsider to replicate the incumbents’

position. The most common forms of entry barriers, except intrinsic physical or legal

obstacles, are as follows:

• Economies of scale: In telecom industry the economies of scale exists from

the supplier side. That is why companies try to increase their subscriber base

at drastic rate.

• Distribution channels: Distribution channels are also providing a major

determining factor. These channels are not loyal to any company andcompetitors can easily access them and make out work for them.

• Customer Switching Costs: Customer switching cost is very low, as cost of

new connection is really low. And new connection offers more benefits to the

customers.

8.2.3 Force 3: The Threat of Substitutes

The threat that substitute products pose to an industry's profitability depends on the

relative price-to-performance ratios of the different types of products or services to whichcustomers can turn to satisfy the same basic need. The threat of substitution is also

affected by switching costs – that is, the costs in areas such as retraining, retooling and

redesigning that are incurred when a customer switches to a different type of product or

service. It also involves:

• Product-for-product substitution (email for mail, fax); is based on the

substitution of need;



• Generic substitution (Video suppliers compete with travel companies);

• Substitution that relates to something that people can do without (cigarettes,

alcohol).

Now let us discuss this concept for telecom industry. The potential major substitutes for telecom industry are as follows:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Satellite phones

All of these technologies have a huge potential, though none of the above a major threat

in current scenario. So the telecom industry has to keep a close look on these substitutes.

8.2.4 Force 4: Buyer Power

Buyer power is one of forces that influence the appropriation of the value created by an

industry. The most important determinants of buyer power are the size and the

concentration of customers. Other factors are the extent to which the buyers are informed

and the concentration or differentiation of the competitors. Kippenberger (1998) states

that it is often useful to distinguish potential buyer power from the buyer's willingness or

incentive to use that power, willingness that derives mainly from the “risk of failure”

associated with a product's use.

• This force is relatively high where there a few, large players in the market, as it is

the case with retailers a grocery stores;

• Present where there is a large number of undifferentiated, small suppliers, such as

small farming businesses supplying large grocery companies;

• Low cost of switching between suppliers, such as from one fleet supplier of

trucks to another.

In the context of Indian telecom industry we can say that the following points influence

the buyer power:

Lack of differentiation among the service provider

Cut throat competition

Customer is price sensitive



Low switching costs

Number portability to have negative impact

8.2.5 Force 5: Supplier Power

Supplier power is a mirror image of the buyer power. As a result, the analysis of supplier

power typically focuses first on the relative size and concentration of suppliers relative to

industry participants and second on the degree of differentiation in the inputs supplied.

The ability to charge customers different prices in line with differences in the value

created for each of those buyers usually indicates that the market is characterized by high

supplier power and at the same time by low buyer power.

In the drawback of Indian telecom industry the following should be kept in mind:

Large number of suppliers: The industry basically has a large number of suppliers,

which helps them to choose from a lot of options. So they try to select the best

option to deliver the value to the customers and to have a competitive advantage

from their competitor.

Shared tower infrastructure: Technology has helped them to share the tower

infrastructure. This basically helps them to reduce the initial investment a lot.

Limited pool of skilled managers and engineers especially those well versed in the

latest.

Medium cost of switching since changing their hardware would lead to additional

cost in modifying the architecture.

Overall influence on the industry – medium.



8.3 SWOT ANALYSIS

A scan of the internal and external environment is an important part of the strategic

planning process. Environmental factors internal to the firm usually can be classified as

strengths (S) or weaknesses (W), and those external to the firm can be classified as

opportunities (O) or threats (T). Such an analysis of the strategic environment is referred

to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resourcesand capabilities to the competitive environment in which it operates. As such, it is

instrumental in strategy formulation and selection. The following diagram shows how a

SWOT analysis fits into an environmental scan:

SWOT Analysis Framework

Environmental Scan

/\

Internal Analysis

External Analysis

/ \

/ \

Strengths Weaknesses

Opportunities Threats

|

SWOT Matrix



8.3.1 Strengths

Here we will analyze the strengths of the telecom industry as a whole. The most

important factors are:

• Technology is advanced and easy to implement: For telecom industry the

technology is really advanced and more and more investment is done on

technology to get world class infrastructure and knowhow to put in this field.

Recently the telecom sector is going to add 3G spectrum as its latest up-

gradation.

• Management Team has prior experience: The management team controlling

Indian telecom sector in really efficient. Thank goes to the IITs which produce

world class engineers. So Indian telecom sector has abundance of

technological knowhow.

8.3.2 Weakness

The weaknesses of the Indian telecom sector are as follows.

• High Cost of Infrastructure: The infrastructure cost of telecom industry is very

high.

• Low customer retention power: The customer retention power for telecom

industry is really low and the customer changes their service provider

company very soon.

8.3.3 Opportunity

•

Population: The population of India is really an opportunity of telecom service providers, as the number of population without telecom service is also very high.

The industry has to target India’s huge population to grow.



• Changing Population psychograph: Population psychograph is also changing.

Previously telecom service was thought as an emergency service, now it has

become an essential part of life in our country.

• Increased Penetration Level: All the organizations of the industry are trying to

increase their penetration level, in other word to increase the tele-density of the

country. The urban Indian population gives a real growth prospect to the industry.

• FDI: The foreign direct investment in telecom has been hiked up from 49% to

74%. This move is positive for the sector, as it requires investments of Rs 700 –

900 million over the next 5 years. FDI inflow by 2004 was 9950.94 cores in

telecom. Countries like Europe, Korea, and Japan telecom are likely to enter

India, as India is seen as fastest growing telecom market in world.

8.3.4 Threats

The treats to the industry are the following:

• Government Policies – Government may provide licenses to many foreign

operators, which may already have pose a threat for the existing players in the

industry.

• New Technology can change the market dynamics: A lot of new technologies are

coming. Then even have the potential of changing the entire industry dynamics or

even create substitute of the telecom services existing.

Some of the examples are follows:

VOIP (Skype, Messenger etc.)

Online Chat

Email

Satellite phones

To summarize the SWAT analysis we can draw the following framework for telecom

industry:



8.4 RATIO ANALYSIS OF INDUSTRY

Ratio Analysis is an approach in understanding the strength and weakness of a business.

Ratio analysis is a very powerful analytical tool useful for measuring performance of an

organization. It is also a yardstick to set goals for improvement. Ratio analysis allows

various interested parties to make evaluation of certain aspects of the firm’s performance.

8.4.1 Liquidity Ratios:

Current Ratio-

This ratio measures the solvency of the company in the short term. This ratio indicates

that how much current asset is available for each rupee of current liabilities. So, higher

the ratio more will be the margin of safety for short-term creditors.

Current ratio for telecom service provider industry for 2007-2008 – 1.22

Current ratio of 1.22 means that the industry can successfully pay off its debt while at the

same time still have cash left over to continue operating.



Debt-to-Equity Ratio-

Debt equity ratio is long term debt divided by share holder’s fund. Long term consists of

secured and unsecured debt while share holders fund consists of share capital and reserve

& surplus. If the ratio is 1:1, it indicates that the company is having equal fund from the

shareholders and also the debt instruments. While the increasing ratio indicates the

company has to pay more interest on the borrowed debt.

Debt-to-equity ratio for telecom service provider industry for 2007-2008 – 0.35

Debt to equity ratio of 0.35 means that industry is not using debt instruments while it is

relying more on the shareholders capital. This indicates that the assets are primarily

supplied with equity. Now as debt is the cheapest source of fund, so telecom service

providers industry is not using the cheapest source of fund.

8.4.2 Turnover Ratios:

These ratios measure how effectively the firm utilizes its resources. These ratios are also

called Activity Ratio, it involves comparison between the level of sales and investment in

various accounts – inventories, debtors, fixed assets etc.

Fixed Assets Turnover Ratio-

Fixed Assets Turnover Ratios is net sales divided by net fixed assets. So fixed assets

turnover ratios show how efficiently the assets of the firm are utilized. Therefore, the

higher the ratio, the more efficient the company is with its assets.

Fixed Assets Turnover Ratios for telecom service provider industry for 2007-2008 –

0.43

Fixed assets in telecom service provider industry are various transmission equipments

like towers, transmitters, optical fibers etc. This fixed assets turnover ratio of 0.43 is very

low

Inventory Turnover Ratio-



Inventory turnover ratio is cost of goods sold divided by average stock. So inventory

turnover ratio leads to stock velocity, which is an indication of the rotation of the current

stock. So less rotation time is good for the company.

Inventory Turnover Ratio for telecom service provider industry for 2007-2008 –

25.65

Stock Velocity – 365/25.65 comes as 14.23 days means the telecom service providers

industry takes 14.23 days to rotate the stock which is again a low stock velocity.

Debtor Turnover Ratio-

It is credit sales divided by average accounts receivables (Debtor + Bills receivables). So

debtor turnover ratio leads to debtor velocity which is an indication that how much timean organization takes to collect its receivables. Hence, lower the debtor velocity, the good

for the organization.

Debtor Turnover Ratio for telecom service provider industry for 2007-2008 – 6.44

Debtor Velocity – 365/6.44 comes as 56.68 days which means telecom service provider

industry takes on an average 57 days to collect its money back from its debtors.

Interest Cover Ratio-

Interest Coverage Ratio is profit before interest, depreciation and tax divided by interest

on long term debt. So the high ratio indicates the low proportion of the debt in the sector

and the industry is using a very conservative policy of using the debt component in the

capital structure.

Interest Cover Ratio for telecom service provider industry for 2007-2008 – 4.52

Interest cover ratio of 4.52 means that the telecom service industry has 4.52 times more

income to pay interest on their debts. This indicates the industry can cover its interest

payments well.

8.4.2 Profitability Ratios:



The purpose of study and analysis of profitability ratios are to help assessing the

adequacy of profits earned by the company and also to discover whether the profitability

is increasing or decreasing.

Gross Profit Margin Ratio-

The Gross Profit Margin Ratio is gross profit divided by sales and by multiplying it to

100. This assists in helping us understand the financial health of the company in terms of

knowing whether or not the company’s profit is enough to pay off its other expenses.

Gross Profit Margin Ratio for telecom service provider industry for 2007-2008 –

39.53

Gross Profit Ratio of 39.53% means that the industry is making 39.53 % on the sales.

Net Profit Ratio-

This ratio is calculated by diving net profit after tax with net sales and multiplying with

100. This ratio reflects net profit margin on the total sales after deducting all expenses,

but before deducting interest and taxation. The comparison of this ratio, with that of the

previous year, will give a correct trend of the performance of the sector.

Net Profit Ratio for telecom service provider industry for 2007-2008 – 15.41

Return on Capital Employed Ratio-

It is calculated by dividing operation profit before interest and tax by capital employed

and multiplying it to 100.

This ratio indicates that how much profit is earned on the total capital employed that

consists of equity, reserve & surplus and long-term debt.

Return on Capital Employed Ratio for telecom service provider industry for 2007-

2008 – 9.72

Return on Net Worth-



Return on Net Worth is profit after tax divided by net worth which consists of equity

share capital and reserve and surplus and multiplying with 100. This ratio is an important

yardstick of performance for equity share holder since it indicates the returns on the

funds employed by them.

Return on Net Worth for telecom service provider industry for 2007-2008 – 10.11



Chapter 9

COMPANY

ANALYSIS

9.1 INTRODUCTION

A brief overview about each company has been mentioned in this chapter. This chapter

also deals with the analysis of the companies on various financial ratios. The financial



ratios of these companies are compared with the industry standard ratios. There is

comparison with the companies on various parameters like Enterprise value, Market

capitalization, EPS, Sales and other income. This comparison gives us an overview in

terms of position of companies in each parameter. These ratios give us an insight to the

financial stability of the firm.

Figure: 9.1 Market Share of Telecom Companies as on 31st Jan’09

9.2 TOP FIVE COMPANIES

The Top five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are:

1. Bharti Airtel Ltd.

2. Reliance Communications Ltd.

3. Vodafone Essar Ltd.

4. BSNL

5. Idea Cellular + Spice

BHARTI AIRTEL LTD.



Telecom giant Bharti Airtel is the flagship company of Bharti Enterprises. The Bharti

Group has a diverse business portfolio and has created global brands in the

telecommunication sector. Airtel comes from Bharti Airtel Limited, India’s largest

integrated and the first private telecom services provider with a footprint in all the 23

telecom circles. Bharti Airtel since its inception has been at the forefront of technology

and has steered the course of the telecom sector in the country with its world class

products and services. The businesses at Bharti Airtel have been structured into three

individual strategic business units (SBU’s) - Mobile Services, Airtel Telemedia Services

& Enterprise Services. The mobile business provides mobile & fixed wireless services

using GSM technology across 23 telecom circles while the Airtel Telemedia Services

business offers broadband & telephone services in 95 cities and has recently launched

India's best Direct-to-Home (DTH) service, Airtel digital TV. The Enterprise services

provide end-to-end telecom solutions to corporate customers and national & international

long distance services to carriers. All these services are provided under the Airtel brand.

The company served an aggregate of 88,270,194 customers as of December 31, 2008; of

whom 85,650,733 subscribed to GSM services and 2,619,461 use the Telemedia Services

either for voice and/or broadband access delivered through DSL. Bharti Airtel is the

largest wireless service provider in the country, based on the number of subscribers as of

December 31, 2008. They also offer an integrated suite of telecom solutions to their

enterprise customers, in addition to providing long distance connectivity both nationally

and internationally. They have recently forayed into media by launching their DTH and

IPTV Services. All these services are rendered under a unified brand "Airtel".

The company also deploys, owns and manages passive infrastructure pertaining to

telecom operations under its subsidiary Bharti Infratel Limited. Bharti Infratel owns 42%

of Indus Towers Limited. Bharti Infratel and Indus Towers are the two top providers of

passive infrastructure services in India.

Company shares are listed on The Stock Exchange, Mumbai (BSE) and The National

Stock Exchange of India Limited (NSE).

RELIANCE COMMUNICATIONS LTD.



Reliance Communications is the flagship company of the Anil Dhirubhai Ambani Group

(ADAG) of companies. Listed on the National Stock Exchange and the Bombay Stock

Exchange, it is India’s leading integrated telecommunication company with over 71

million customers.

Their business encompasses a complete range of telecom services covering mobile and

fixed line telephony. It includes broadband, national and international long distance

services and data services along with an exhaustive range of value-added services and

applications. Our constant endeavour is to achieve customer delight by enhancing the

productivity of the enterprises and individuals we serve.

Reliance Mobile (formerly Reliance India Mobile), launched on 28 December 2002,

coinciding with the joyous occasion of the late Dhirubhai Ambani’s 70th birthday, was

among the initial initiatives of Reliance Communications. It marked the auspicious

beginning of Dhirubhai’s dream of ushering in a digital revolution in India. Today, thecompany can proudly claim that they were instrumental in harnessing the true power of

information and communication, by bestowing it in the hands of the common man at

affordable rates.

They endeavour to further extend their efforts beyond the traditional value chain by

developing and deploying complete telecom solutions for the entire spectrum of society.

It was established in the year 2004 as Reliance Infrastructure Developers Private Limited,

Reliance Communications started laying 60,000 route kilometers of a pan-India fibre

optic backbone with high capacity, integrated (wireless and wireline), convergent (voice,

data and video) digital network and to offer services spanning the entire infocomm valuechain. It is capable of delivering a range of services spanning the entire infocomm

(information and communication) value chain, including infrastructure and services for

enterprises as well as individuals, applications, and consulting.

VODAFONE ESSAR LTD.



Vodafone Essar in India is a subsidiary of Vodafone Group Plc and commenced

operations in 1994 when its predecessor Hutchison Telecom acquired the cellular license

for Mumbai. Vodafone Essar now has operations in 22 circles with over 65.92 million

customers**. The company is a joint venture of Essar Communication Holdings Ltd and

the UK-based Vodafone Group. Vodafone has partnered with the Essar Group as their

principal joint venture partner for the Indian market. They are in the business of cellular

telephony. Over the years, Vodafone Essar, under the Hutch brand, has been named the

‘Most Respected Telecom Company’, the ‘Best Mobile Service in the country’ and the

‘Most Creative and Most Effective Advertiser of the Year’.

Vodafone is the world’s leading international mobile communications company. It

currently has equity interests in 27 countries across 5 continents and 40 partner networks

with over 289 million proportionate customers worldwide. Vodafone has partnered with

the Essar Group as its principal joint venture partner for the Indian market.

Essar Global Limited (EGL) is a diversified business group spanning the manufacturing

and services sectors of Steel, Energy, Power, Communications, Shipping & Logistics,

and Projects. The group has operations and investments in India, Canada, USA, Africa,

the Middle East, the Caribbean and South East Asia and employs 30,000 people

worldwide.

Vodafone Essar Ltd provides services like 2G, which are based on 1800 Mhz and

900Mhz GSM digital technology. They offers voice and data services. In addition, they

offers postpaid connections activation, prepaid SIM cards and recharge coupons sale,service activation/deactivation, postpaid tariff plan change, customer query resolution,

prepaid/postpaid SIM card replacement and upgradation, mobile number change, and

information on and subscription of value added services through stores.

**Figures from Cellular Operators Association of India, February 28, 2009



BHARAT SANCHAR NIGAM LTD.

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest

Telecommunications Company providing comprehensive range of telecom services in

India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service,

MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has

become one of the largest public sector unit in India.

It has about 47.3 million line basic telephone capacity, 4 million WLL capacity, 20.1

Million GSM Capacity, more than 37382 fixed exchanges, 18000 BTS, 287 Satellite

Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting

602 Districts, 7330 cities/towns and 5.5 Lakhs villages.

BSNL is the only service provider, making focused efforts and planned initiatives to

bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator inthe country to beat its reach with its wide network giving services in every nook & corner

of country and operates across India except Delhi & Mumbai.

BSNL is numero uno operator of India in all services in its license area. The company

offers vide ranging & most transparent tariff schemes designed to suite every customer.

BSNL cellular service, CellOne, has more than 17.8 million cellular customers, garnering

24 percent of all mobile users as its subscribers. That means that almost every fourth

mobile user in the country has a BSNL connection. In basic services, BSNL is miles

ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per cent share of

the subscriber base and 92 percent share in revenue terms.

BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers

who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account

Less Internet (CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country.

BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure

that provides convergent services like voice, data and video through the same Backbone

and Broadband Access Network. At present there are 0.6 million DataOne broadbandcustomers.

IDEA CELLULAR LTD. + SPICE



DEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange

(BSE and the National Stock Exchange (NSE) in March 2007. Idea Cellular Ltd.

is India's leading GSM mobile services operator. It has licenses to operate in 11 circles.

The company has a customer base of over 17 million. It is the first cellular company to

launch music messaging with Cellular Jockey, Background Tones, Group Talk, a voice

portal with Say IDEA and a complete suite of mobile email Services.

A brand known for many firsts, Idea was the first to launch GPRS and EDGE in the

country. Idea has received international recognition for its path-breaking innovations

when it won the GSM Association Award for "Best Billing and Customer Care Solution"

for 2 consecutive years.

IDEA Cellular is part of the Aditya Birla Group, India's first truly multinational

corporation. The group operates in 25 countries, and is anchored by over 1,25,000

employees belonging to 25 nationalities.

The combined holding of the Aditya Birla Group companies in Idea stands at 98.3 per

cent. Mr. Kumar Mangalam Birla has been named the Chairman of the company.

The Indian telecommunications market for mobile services is divided into 22 "Service

Areas" classified into "Metro", Category "A", Category "B" and Category "C" service

areas by the Government of India. These classifications are based principally on a

Service Area's revenue generating potential

Customer Service and Innovation are the drivers of this Cellular Brand. A brand known

for their many firsts, IDEA is the only operator to launch General Packet Radio Service

(GPRS) and EDGE in the country. IDEA has seen phenomenal growth since its inception,

the company's footprint idea is to first achieve critical mass, then drill deep instead of

spreading thin, however, does not increasing geographic footprint only, it also drills deep

and successfully attempts to provide excellent network coverage in all its circles of

operations.

9.3 BOTTOM FIVE COMPANIES

The Bottom five companies, on the basis of ‘Market Share’ as on 31st January, 2009 are:

1. Aircel Cellular Ltd. + Dishnet

2. Mahanagar Telephone Nigam Ltd. (MTNL)

3. BPL Mobile Communications Ltd.



4. HFCL Infotel Ltd.

5. Shyam Telecom Ltd.

AIRCEL + DISHNET

The Aircel Group is a joint venture between Maxis Communications Berhad of Malaysia

and Apollo Hospital Enterprise Ltd of India, with Maxis Communications holding a

majority stake of 74%.

Aircel commenced operations in 1999 and became the leading mobile operator in Tamil

Nadu within 18 months. In December 2003, it launched commercially in Chennai and

quickly established itself as a market leader – a position it has held since.

Aircel began its outward expansion in 2005 and met with unprecedented success in the

Eastern frontier circles. It emerged a market leader in Assam and in the North Eastern provinces within 18 months of operations. Till today, the company gained a foothold in

14 circles including Chennai, Tamil Nadu, Assam, North East, Orissa, Bihar, Jammu &

Kashmir, Himachal Pradesh, West Bengal, Kolkata, Kerala, Andhra Pradesh, Karnataka

and Delhi.

The Company has currently gained a momentum in the space of telecom in India post the

allocation of additional spectrum by the Department of Telecom, Govt. of India for 13

new circles across India. These include Delhi (Metro), Mumbai (Metro), Andhra Pradesh,

Gujarat, Haryana, Karnataka, Kerala, Madhya Pradesh, Maharashtra & Goa, Rajasthan,

Punjab, UP (West) and UP (East).

Aircel has won many awards and recognitions. Voice and Data gave Aircel the highest

rating for overall customer satisfaction and network quality in 2006. Aircel emerged as

the top mid-size utility company in Business world’s ‘List of Best Mid-Size Companies’

in 2007. Additionally, Tele.net recognized Aircel as the best regional operator in 2008.

With over 16 million customers in the country, Aircel, the fastest growing telecom

company in India, has revved up plans to become a full-fledged national operator by end

of 2009.

MTNL



Mahanagar Telephone Nigam Limited (MTNL) was set up in 1st April of the year 1986

by the Government of India to upgrade the quality of telecom services, expand the

telecom network, introduce new services and to raise revenue for telecom development

needs of India's key metros, Delhi (the political capital) and Mumbai (the business capital

of India). The company has also been in the forefront of technology induction by

converting 100% of its telephone exchange network into the state-of-the-art digital mode.

MTNL as a company, over last nineteen years, grew rapidly by modernizing the network,

incorporating the State-of-the-art technologies and a customer friendly approach. The

Company providing various types of telecommunication services including Telephone,

telex, wireless, data communication, telematic and other like forms of communication

(Internet).

First digital exchange world technology brought to India by the company during the year

1986. Phone Plus services was offered by the company in the year 1988, it givesmultiplied benefits to telephone users. During the year 1992, the company introduced

Voice Mail Service. MTNL had introduced the Integrated Services Digital Network

(ISDN) services in the period of 1996. Apart from this IVRS (Interactive Voice Response

System) like local assistance changed number information, and fault booking system

ensuring round the clock service, a CD-ROM version of the telephone directory and an

on-line directory enquiry through PC was introduced during the year 1997. To facilitate

the clientele, MTNL launched the country's first toll-free service in Delhi in the period of

1998. During the year 1999, MTNL brought in the most widely using service called

Internet (Network of Networks), the extreme level of information exchange.

During the year 2001, the company launched GSM Cellular Mobile service under the

brand name Dolphin and in the same year MTNL also launched Wireless in Local Loop

(WLL) Mobile services under the brand name Garuda.

The Company established Wi-Fi & digital certification services in the identical year.

MTNL bagged the award for excellence in cost reduction in the year 2004. State of the

art training centre of the company 'CETTM' was commissioned in the year of 2004. The

Company introduced the broadband services under the brand name of 'TRI BAND'

during the year 2005. MTNL-STPI IT Services Ltd is a 50:50 Joint Venture between

Software Technology Parks of India (STPI) and the company. The Company has

restructured Millennium Telecom Ltd (MTL) as a Joint Venture company of MTNL and

BSNL with 51% and 49% equity participation respectively.



To remain market leader in providing world class Telecom and IT related services at

affordable prices, the company partaking its all efforts in the same business area and

MTNL wants to become a global player, also find a place in the Fortune 500' companies.

BPL MOBILE COMMUNICATIONS LTD.

BPL Mobile Communications Limited popularly known as BPL Mobile is an India-based

telecommunication service providing company. BPL Mobile Communications Limited is

an offshoot of the legendary business conglomerate ESSAR group. BPL Mobile

Communications Limited was established in the year 1995 and it is presently operating inonly in the city of Mumbai. BPL Mobile Communications Limited has revolutionized the

Indian mobile telecommunication industry. Within a short span of time the subscriber

base of BPL Mobile Communications Limited has reached the 1 million mark. This

gigantic mobile telecommunication company of India has grown in leaps and bounds and

it offers seamless service to its customers spread across Mumbai. Further, BPL Mobile

has gained tremendous popularity due to its competitive pricing of tariffs. BPL Mobile

offers high-class mobile service to its wide pool of Mumbai subscribers.

Further, it ranks very high on parameters like, customer satisfaction, billing performance,

voice quality etc and was thus ranked first in the category of Global System for Mobile

Communications (GSM) and Code Division Multiple Access (CDMA) of mobile service

providers, operating in Mumbai. Superior coverage and optimum sound clarity are the

strengths of BPL Mobile. BPL Mobile Communications Limited provides its customers

with world class mobile services, through the use of state-of-the-art technology and

network and this includes use of unique network design, the Qualnet, Camel Phase 2

Intelligent Network (IN) platform and GPRS facilitating ultra modern services like

Multimedia Messaging Services (MMS), mobile browsing and Java based mobile phone

games. Mr. S. Subramaniam, CEO of the company, heads this leading telecommunication

company of India.

The products and services offered by BPL Mobile Communications Limited are as

follows -

• Prepaid Connections

• Postpaid Connections



• Prepaid Recharge Coupons

• Bill Payments

• Value Added Services (VAS)

• Service Inquiries

• SIM Replacements• Handset Sales

HFCL INFOTEL LTD.

Incorporated on 2 Aug.'46, The Investment Trust of India (ITI) is managed by chairman

and managing director B K Kothari. During 2002-03 the name of the Company changed

to HFCL Infotel Ltd, as part of Company's diversification and restructuring programme,HFCL Infotel Ltd ('transferor Company') a telecommunication Company operating in the

Punjab Circle merged with the Company through a Scheme of Amalgamation and

decided to hive off the business of Hire Purchase, Finance, Leasing and Securities

Trading by way of an outright sale with effect from 1st September 2002 to its wholly

owned subsidiary 'Rajam Finance & Investments Company (India) Ltd' now renamed as

'The Investment Trust of India Ltd'

Other group companies are Kothari Sugars and Chemicals and Madras Safe Deposit. In

Sep.'94, it came out with a rights issue of 21.79 lac shares (premium: Rs 30) aggregating

Rs 8.72 cr, to augment long-term working capital. The company is mainly engaged in

hire purchase, lease financing and investments. Its clients include individuals, firms as

well as corporate bodies.

ITI's business activities include sugar, petrochemicals, industrial alcohol, etc. It has two

subsidiaries -- ITI Pioneer AMC and ITI Capital Markets. ITI Pioneer AMC has

promoted Kothari Pioneer Mutual Fund. ITI has invested 55% of its capital in ITI

Pioneer AMC and the remaining 45% has been subscribed to by Pioneering Management

Corporation, US. During 1995-96, ITI Pioneer AMC Limited ceased to be a subsidiary of

the company. During 1997-98, The Company’s holding in ITI Capital Market Ltd wassold to Kothari Pioneer AMC Ltd.

During 2003-04, The Company launched its Prepaid Mobile product and a complete

range of innovative value Added Services and Data products were launched in May 2004,

by the introduction of DSL-high speed Internet product. The company became the first

service provider to have launched DSL services in the state of Punjab and Chandigarh.



During 2004-05, The Company expanded its services to 125 cities/towns with 2.47 lacs

subscribers in Punjab.

The company is planning a venture into Video and Cable TV Services and making triple

play services by an expansion into the neighbouring states of Punjab. A wholly owned

subsidiary, Connect Broadband Services Limited was formed on July 2004, for the above

purpose.

The Company's services namely, Fixed Line Telephoney, Mobile Telephoney, Broadband

Internet Access and Data Networking Access are offered under the brand name

'CONNECT'.

SHYAM TELECOM LTD.

Incorporated in 1992, Shyam Telecom Limited, a leading manufacturer of Telecom

Equipment in India is the flagship company of the Shyam Group of India. The expanding

horizon of the telecom sector in India has given Shyam new vistas and avenues for

growth and expansion.

To concentrate mainly on its core activities i.e. investment in Telecom activities, the

company restructured its business and a result it has de-merged its manufacturing

business to a wholly owned subsidiary viz. Shyam Telecom Manufacturing Ltd (formerlyknown as Shyam Telecom Infrastructure Projects Ltd). Subsequently the company will be

an investor in Shyam Telecom Manufacturing Limited (developer of wireless product for

GSM & CDMA) and Shyam Telelink Ltd (basic telephony services in Rajasthan).

Shyam Telecom also took a strategic decision by de-subsidiarise Shyam International Ltd

by which Shyam ACeS also got de-subsidiarised. It has also acquired the entire capital of

Shyam Telecom Manufacturing Ltd & Shyam Tel Singapore Pvt. Ltd.

Shyam's R&D which is fully recognized by the Department of Science and Technology

has been able to design new products. Shyam's R&D wing is well-equipped with thelatest and sophisticated testing instruments, CAD/CAM for design and assembly work

besides having highly qualified engineers.

The company currently manufactures Wireless in Local Loop, Fiber in local loop, Digital

Loop Carriers (DLC), Digital Radios, Spread Spectrum Radios, Digital Subscriber Line

(DSL) for Internet Access, Remote Energy Meeting Systems (REMS) & Supervisory



control & data accusation systems (SCADA). The company has an international presence

in 27 countries spread over America, Europe, Africa, Indian sub-continent and Asia-

Pacific.

The company has extended its basic telephony service to Jaipur and Jodhpur. The

company's service covered all the three technologies in basic telephony - wireline,

CDMA and CorDect.

9.4 RATIO ANALYSIS OF COMPANY

9.4.1 Bharti Airtel Ltd.

Table 9.1: Key Ratios of Bharti Airtel Ltd.



Industry :Telecommunications - Service Provider

8-

Mar

7-

Mar

6-

Mar

5-

Mar

4

-

Mar

3-

Mar

2-

Mar

1-

Mar

Mar-

00

Debt-Equity Ratio 0.38 0.54 0.83 0.6 0.07 0.01 0.02 0.09 0.37

Long Term Debt-

Equity Ratio

0.35 0.5 0.76 0.5 0.03 0 0 0.09 0.37

Current Ratio 0.53 0.46 0.46 1.1 17.3 40.35 16.34 13.05 69.18

Turnover Ratios

Fixed Assets 0.94 0.8 0.72 1.19 0 0 0 0 0

Inventory 462.1

2

509.0

3

447.7

4

500.5

1

0 0 0 0 0

Debtors 11.08 12.1 12.54 22.08 0 0 0 0 0

Interest Cover

Ratio

12.47 15.81 10.65 5.93 0.39 0.27 -4.22 0.04 0.58

PBIDTM (%) 41.72 40.7 36.23 36.7 0 0 0 0 0

PBITM (%) 29.43 27.52 22.46 23.8 0 0 0 0 0

PBDTM (%) 39.36 38.96 34.13 32.69 0 0 0 0 0

CPM (%) 36.53 35.78 31.69 28.22 0 0 0 0 0

APATM (%) 24.24 22.59 17.91 15.32 0 0 0 0 0

ROCE (%) 34.88 34.07 22.55 23.96 0.16 0.17 -1.17 0.11 0.41

RONW (%) 39.53 43.04 31.82 23.88 -0.27 -0.47 -1.47 -2.55 -0.4

The Current Ratio of Bharti Airtel Ltd. is 0.53 for the year 2007-2008. This means thatthe company is having fewer assets to cover the liability and also the investors should be

weary of the fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio of Bharti Airtel Ltd. is 0.38 for the year 2007-2008 which means

that company is not using its debt instruments while it is relying more on the

shareholders capital. This also indicates the company’s assets are primarily supplied with

equity.

Fixed Assets Turnover Ratio of Bharti Airtel Ltd. is 0.94 for the year 2007-2008. This

ratio is higher than the industry ratio for Bharti Airtel which indicates that assets are

being fairly utilized by the company in order to generate sales.

Inventory Turnover Ratio of Bharti Airtel Ltd. is 462.12 for the year 2007-2008. So the

stock velocity of Bharti is 365/462.12 which is equal to 0.79 which is fairly good if we

compare it with the industry standard which is as high as 14.23. Therefore, Bharti Airtel

takes less than a day to rotate its stock.



Debtor Turnover Ratio of Bharti Airtel Ltd. is 11.08 for the year 2007-2008. So the

debtor velocity is 365/11.08 which comes out as 32.94 days i.e. Bharti takes on an

average 33 days to collect its money back from the debtors, which is again lower than as

compared to the industry.

Interest Cover Ratio of Bharti Airtel Ltd. is 12.47 for the year 2007-2008, which means

that Bharti has 12.47 times more income to pay interest on their debts. So the company is

in a comfortable situation.

Gross Profit Margin Ratio of Bharti Airtel Ltd. is 41.72% for the year 2007-2008,

means that Bharti is making a profit before interest, depreciation and tax of 41.72%.

Net Profit Ratio of Bharti Airtel Ltd. is 24.24% for the year 2007-2008 which is higher

in comparison with the industry ratio, so this goes to show the efficiency of the operation

of the company.

Return on Capital Employed Ratio of Bharti Airtel Ltd. is 34.88 for the year 2007-

2008 which indicate that the company is earning 34.88 times the profit on the total

capital employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Bharti Airtel Ltd. is 39.53 for the year 2007-2008 which is

more than the industry average and therefore shows a profit of 39.53 times per rupee

invested by the investors.

9.3.2 Reliance Communications Ltd.

Table 9.2: Key Ratios of Reliance Communications Ltd.




8-Mar 7-Mar 5-Dec 5-Mar

Key Ratios

Debt-Equity Ratio 0.77 0.41 0 0

Long Term Debt-Equity Ratio 0.57 0.39 0 0

Current Ratio 1.25 1.94 5.13 0

Turnover Ratios

Fixed Assets 0.7 0.98 0 0

Inventory 98.7 207.19 0 0

Debtors 15.61 25.45 0 0

Interest Cover Ratio 3.99 6.3 0 0

PBIDTM (%) 35.95 36.95 0 0

PBITM (%) 23.49 22.56 0 0

PBDTM (%) 30.07 33.37 0 0

CPM (%) 29.95 33.28 0 0

APATM (%) 17.49 18.88 0 0

ROCE (%) 8.66 9.23 0.16 0

RONW (%) 11.4 10.92 0.1 0

Current Ratio of Reliance Communications is 1.25 for the year 2007-2008. This

indicates that the company can successfully pay off its debt while at the same time still

have cash left over to continue operating.

Debt-to-Equity Ratio of Reliance Communications is 0.77 for the year 2007-2008indicating that the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of Reliance Communications is 0.7 for the year 2007-

2008. This ratio is higher, for the company, than the industry ratio which indicates that

assets are being fairly utilized by the company in order to generate sales.

Inventory Turnover Ratio of Reliance Communications is 98.7 for the year 2007-2008.

So the stock velocity of Reliance is 365/98.7 which is equal to 3.69 which is fairly good

if we compare it with the industry standard which is as high as 14.23. Therefore,

Reliance Communications takes less than four days to rotate its stock.Debtor Turnover Ratio of Reliance Communications is 15.61 for the year 2007-2008.

So the debtor velocity is 365/15.61 which comes out as 23.38 days i.e. Reliance takes on

an average 23 days to collect its money back from the debtors, which is again lower than

as compared to the industry.



Interest Cover Ratio of Reliance Communications is 3.99 for the year 2007-2008,

which means that Reliance has 3.99 times more income to pay interest on their debts. So

the company is in a good situation.

Gross Profit Margin Ratio of Reliance Communications is 35.95% for the year 2007-

2008, means that Reliance is making a profit before interest, depreciation and tax of

35.95%.

Net Profit Ratio of Reliance Communications is 17.49% for the year 2007-2008 which

is higher in comparison with the industry ratio, so this goes to show the efficiency of the

operation of the company.

Return on Capital Employed Ratio of Reliance Communications is 8.66 for the year

2007-2008, which indicate that the company is earning 8.66 times the profit on the total

capital employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Reliance Communications is 11.4 for the year 2007-2008,

which is a little more than the industry average and therefore shows a profit of 11.4 times

per rupee invested by the investors.

9.3.3 Vodafone Essar Ltd.

Table 9.3: Key Ratios of Vodafone Essar Ltd.


8-Mar 6-Dec 5-Dec

Key Ratios



Debt-Equity Ratio 0.27 0.2 0.17

Long Term Debt-Equity Ratio 0 0 0.14

Current Ratio 1.4 1.51 1.61

Turnover Ratios

Fixed Assets 1.52 1.26 1.3Inventory 1,656.82 1,137.42 1,414.38

Debtors 15.2 11.48 10.48

Interest Cover Ratio 2.44 3.93 12.18

PBIDTM (%) 30.81 34.92 39.26

PBITM (%) 22.18 27.51 30.85

PBDTM (%) 21.71 27.91 36.73

CPM (%) 21.99 29.16 35.25

APATM (%) 13.36 21.75 26.84

ROCE (%) 4.23 4.22 5.38

RONW (%) 3.22 4.01 5.5

Current Ratio of Vodafone Essar is 1.4 for the year 2007-2008. This indicates that the

company can successfully pay off its debt while at the same time still have cash left over

to continue operating.

Debt-to-Equity Ratio of Vodafone Essar is 0.27 for the year 2007-2008 indicating that

the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of Vodafone Essar is 1.52 for the year 2007-2008. This

ratio is higher, for the company, than the industry ratio which indicates that assets are

being very well utilized by the company in order to generate sales.

Inventory Turnover Ratio of Vodafone Essar is 1656.82 for the year 2007-2008. So the

stock velocity of Vodafone is 365/1656.82 which is equal to 0.22 which is fairly good if

we compare it with the industry standard which is as high as 14.23. Therefore, Vodafone

Essar takes less than a day to rotate its stock.

Debtor Turnover Ratio of Vodafone Essar is 15.2 for the year 2007-2008. So the debtor velocity is 365/15.2 which comes out as 24.01 days i.e. Vodafone takes on an average 24

days to collect its money back from the debtors, which is again lower than as compared

to the industry.



Interest Cover Ratio of Vodafone Essar is 2.44 for the year 2007-2008, which means

that Vodafone has 2.44 times more income to pay interest on their debts. So the company

is in a good situation.

Gross Profit Margin Ratio of Vodafone Essar is 30.81% for the year 2007-2008, means

that Vodafone is making a profit before interest, depreciation and tax of 30.81%.

Net Profit Ratio of Vodafone Essar is 13.36% for the year 2007-2008, which is higher in

comparison with the industry ratio, so this goes to show the efficiency of the operation of

the company.

Return on Capital Employed Ratio of Vodafone Essar is 4.23 for the year 2007-2008,

which indicate that the company is earning 4.23 times the profit on the total capital

employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Vodafone Essar is 3.22 for the year 2007-2008, which means it

shows a profit of 3.22 times per rupee invested by the investors.

9.3.4 Bharat Sanchar Nigam Ltd. (BSNL)

Table 9.4: Key Ratios of BSNL


8-

Mar

7-

Mar

6-

Mar

5-Mar 4-

Mar

3-

Mar

2-

Mar

1-

Mar



Key Ratios

Debt-Equity Ratio 0.05 0.08 0.1 0.12 0.13 0.17 0.24 0.29

Long Term Debt-Equity Ratio 0.05 0.08 0.1 0.12 0.13 0.17 0.24 0.29

Current Ratio 1.92 1.8 1.56 1.25 0.89 0.77 0.7 0.57

Turnover Ratios

Fixed Assets 0.27 0.3 0.33 0.34 0.35 0.32 0.35 0.31

Inventory 10.47 12.22 13.91 14.58 11.64 7.39 7.57 7.61

Debtors 5.86 5.83 5.59 6.3 9.07 5.84 5.09 5.22

Interest Cover Ratio 6.1 11.23 8.53 210.77 76.87 2.08 10.18 3.72

PBIDTM (%) 46.41 52.28 52.41 47.23 53.05 40.75 56.8 41.83

PBITM (%) 16.45 25.85 26.46 18.46 21.6 2.99 20.81 8.76

PBDTM (%) 43.72 49.98 49.31 47.14 52.77 39.31 54.76 39.48

CPM (%) 39.26 48.98 50.68 54.46 45.61 38.61 53.28 39.48

APATM (%) 9.3 22.55 24.74 25.69 14.16 0.84 17.29 6.4

ROCE (%) 5.84 10.02 11.44 8.17 10.02 1.15 8.6 3.49

RONW (%) 2.92 9.34 11.93 13.03 8.44 0.44 9.58 3.29

Current Ratio of BSNL is 1.92 for the year 2007-2008. This indicates that the company

can successfully pay off its debt while at the same time still have cash left over to

continue operating.

Debt-to-Equity Ratio of BSNL is 0.05 for the year 2007-2008 which means that

company is not using debt instruments while it is relying more on the shareholders

capital. This also indicates the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of BSNL is 0.27 for the year 2007-2008. This ratio is

higher than the industry ratio which indicates that assets are being fairly utilized by the

company in order to generate sales.

Inventory Turnover Ratio of BSNL is 10.47 for the year 2007-2008. So the stock

velocity of BSNL is 365/10.47 which is equal to 34.86 that is higher than the industry

standard of 14.23. Therefore, BSNL takes 35 days to rotate its stock.

Debtor Turnover Ratio of BSNL is 5.86 for the year 2007-2008. So the debtor velocity

is 365/5.86 which comes out as 65.29 days i.e. BSNL takes on an average 65 days to

collect its money back from the debtors, which is again higher than the industry

standards. It is highest among all the major players in the market.



Interest Cover Ratio of BSNL is 6.1 for the year 2007-2008, which means that BSNL

has 6.1 times more income to pay interest on their debts. So the company is in a good

situation.

Gross Profit Margin Ratio of BSNL is 46.41 for the year 2007-2008, means that BSNL

is making a profit before interest, depreciation and tax of 46.41%. BSNL being a public

sector company has been able to generate gross profit more than the industry standards

and also other major players.

Net Profit Ratio of BSNL is 9.3 for the year 2007-2008, which is lower in comparison

with the industry ratio. This shows that BSNL had to pay other indirect expenses which

led to fall in the net profit.

Return on Capital Employed Ratio of BSNL is 5.84 for the year 2007-2008, which

indicate that the company is earning 5.84 times the profit on the total capital employedthat consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of BSNL is 2.92 for the year 2007-2008, which is lower than the

industry average and therefore shows a profit of 2.92 times per rupee invested by the

investors.

9.3.5 Idea Cellular Ltd.

Table 9.5: Key Ratios of Idea Cellular Ltd.


8

-Mar

7

-Mar

6

-Mar

5

-Mar

4

-Mar

3

-Mar

2

-Mar

1

-Mar

Ma

r-00

Mar-

99



Key Ratios

Debt-Equity Ratio 1.88 2.14 2.54 2.41 2.02 2 3.5 6 3.23 2.13

Long Term Debt-Equity

Ratio

1.63 1.55 1.43 1.55 1.64 2 3.5 6 3.23 2.13

Current Ratio 0.66 0.84 0.76 0.8 0.93 0.89 0.51 0.41 0.47 0.43

Turnover Ratios

Fixed Assets 0.58 0.63 0.46 0.41 0.34 0.31 0.39 0.38 0.27 0.23

Inventory 295.

19

326.

83

180.

33

143.

04

137.

44

137.1

1

134.1

1

94.3

5

78.9

5

40.72

Debtors 38.2

8

35.8

9

17.2

1

13.5

3

13.4

9

11.15 9.72 7.84 7.12 5.59

Interest Cover Ratio 3.38 2.49 1.5 1.1 0.2 0.21 -0.14 -0.51 0.23 -1.63

PBIDTM (%) 36.6

5

34.8

5

36.6

3

32.1 21.6

3

35.3

8

24.8

2

-12.7 42.4

7

-167.

33

PBITM (%) 23.6 19.4

7

19.3

1

17.5

3

4.44 4.99 -3.79 -25.3

4

24.1

5

-189.

22PBDTM (%) 29.6

7

27.0

4

23.7

2

16.1

7

-0.56 11.62 -3.03 -62.6

6

-60.

98

-283.

4

CPM (%) 28.5

9

26.8

8

23.5

7

16.1

7

-0.56 11.62 -3.03 -62.6

6

-60.

98

-283.

4

APATM (%) 15.5

4

11.5 6.26 1.6 -17.7

5

-18.7

7

-31.6

5

-75.2

9

-79.

31

-305.

29

ROCE (%) 15.5

9

11.61 6.86 6.49 0 1.72 -1.83 -14.4

7

4.75 -20.7

5

RONW (%) 21.8

1

14.3

7

5.32 1.8 0 -28.8

1

-62.1

3

-112.

71

-41.

59

-99.9

7

Current Ratio of IDEA is 0.66 for the year 2007-2008. This means that the company ishaving fewer assets to cover the liability and also the investors should be weary of the

fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio is 1.88 for the year 2007-2008, which means that company using

more of debt instruments. This also indicates the company’s assets are primarily supplied

with debt.

Fixed Assets Turnover Ratio of IDEA is 0.58 for the year 2007-2008. This ratio is

higher than the industry ratio which indicates that assets are being fairly utilized by the

company in order to generate sales.

Inventory Turnover Ratio of IDEA is 295.19 for the year 2007-2008. So the stock

velocity of IDEA is 365/295.19 which is equal to 1.24 that is lower than the industry

standard of 14.23. Therefore, it takes only a day to rotate its stock.



Debtor Turnover Ratio of IDEA is 38.28 for the year 2007-2008. So the debtor velocity

is 365/38.28 which comes out as 9.54 days i.e. IDEA takes on an average 10 days to

collect its money back from the debtors, which is a good sign for the company.

Interest Cover Ratio of IDEA is 3.38 for the year 2007-2008, which means that IDEA


situation.

Gross Profit Margin Ratio of IDEA is 36.65 for the year 2007-2008, means that IDEA

is making a profit before interest, depreciation and tax of 36.65%

Net Profit Ratio of IDEA is 15.54 for the year 2007-2008 which is higher in comparison

with the industry ratio, so this goes to show the efficiency of the operation of the

company.

Return on Capital Employed Ratio of IDEA is 15.59 for the year 2007-2008, which

indicate that the company is earning 15.59 times the profit on the total capital employed

that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of IDEA is 21.81 for the year 2007-2008, which means it shows a

profit of 21.81 times per rupee invested by the investors.

9.3.6 Aircel Cellular Ltd.

Table 9.6: Key Ratios of Aircel Cellular Ltd.


6-Dec 6-

Mar

5-Mar 4-Mar 3-Mar 2-

Mar

1-Mar Mar-

00

Mar-

99

Key Ratios

Debt-Equity Ratio 0.41 0.61 1.21 1.87 2.01 1.85 2.68 3.58 3.21

Long Term Debt-Equity Ratio

0.41 0.57 1.15 1.87 2.01 1.85 2.68 3.58 3.21

Current Ratio 1.01 1 0.99 1.18 0.88 0.77 0.82 0.67 0.68

Turnover Ratios

Fixed Assets 0.9 0.77 0.66 0.55 0.77 1.03 1.04 0.72 0.67

Inventory 527.1

7

605.6 784.7

6

611.08 685.0

8

512.5 290.7

2

136.39 88.97



Debtors 15.22 15.37 13.07 10.06 12.21 11.87 10.07 6.13 4.55

Interest Cover Ratio 9.17 8.26 2.91 1.97 1.69 2.14 2.03 0.74 0.18

PBIDTM (%) 44.96 43.52 34.63 44.01 37.76 33.87 33.97 28.83 20.03

PBITM (%) 34.6 32.78 17.01 26.98 17.3 23.77 23.21 12.49 3.5

PBDTM (%) 41.19 39.55 28.78 30.31 27.54 22.74 22.53 11.92 0.32

CPM (%) 36.04 35.93 32.68 29.55 27.54 22.74 22.53 11.92 0.32

APATM (%) 25.68 25.19 15.06 12.52 7.08 12.65 11.78 -4.43 -16.2

ROCE (%) 43.3 41.88 17.78 19.31 17.29 34.7 31.69 12.29 3.26

RONW (%) 45.33 51.84 32.18 19.44 16.32 42.93 78 -32.46 -113.2

2

Current Ratio- 1.01 for the year 2005-2006. This indicates that the company can

successfully pay off its debt while at the same time still have cash left over to continue

operating.

Debt-to-Equity Ratio- 0.41 for the year 2005-2006 which means that company isrelying less on debt instruments while it is relying more on the shareholders capital. This

also indicates the company’s assets are primarily supplied with equity.

Fixed Assets Turnover Ratio of Aircel is 0.9 for the year 2005-2006. This ratio is higher

than the industry ratio which indicates that assets are being fairly utilized by the company

in order to generate sales.

Inventory Turnover Ratio of Aircel is 527.17 for the year 2005-2006. So the stock

velocity of Aircel is 365/527.17 which is equal to 0.69 that is lowest in the industry.

Therefore, Aircel takes a day to rotate its stock.

Debtor Turnover Ratio of Aircel is 15.22 for the year 2005-2006. So the debtor velocity

is 365/15.22 which comes out as 23.98 days i.e. Aircel takes on an average 24 days to

collect its money back from the debtors, which is again lower than as compared to the

industry standards of 57 days.

Interest Cover Ratio of Aircel is 9.17 for the year 2005-2006, which means that Aircel


situation.

Gross Profit Margin Ratio of Aircel is 44.96 for the year 2005-2006, means that Aircel

is making a profit before interest, depreciation and tax of 44.96%.

Net Profit Ratio of Aircel is 25.68 for the year 2005-2006, which is higher in

comparison with the industry ratio, so this goes to show the efficiency of the operation of

the company.



Return on Capital Employed Ratio of Aircel is 43.3 for the year 2005-2006, which



Return on Net Worth of Aircel is 45.33 for the year 2005-2006, which means it shows a


9.3.7 Mahanagar Telephone Nigam Ltd. (MTNL)

Table 9.7: Key Ratios of MTNL


8-

Mar

7-

Mar

6-

Mar

5-

Mar

4-

Mar

3-

Mar

2-

Mar

1-

Mar

Mar-

00

Mar-

99

Key Ratios

Debt-Equity

Ratio

0 0 0 0 0 0.14 0.32 0.39 0.52 0.91

Long Term Debt-

Equity Ratio

0 0 0 0 0 0.14 0.32 0.39 0.52 0.91

Current Ratio 1.35 1.34 1.32 1.29 1.28 1.45 1.78 1.94 2.09 2.58

Turnover Ratios

Fixed Assets 0.3 0.33 0.38 0.4 0.49 0.48 0.55 0.56 0.55 0.59

Inventory 24.73 27.34 34.3 40.54 53.4 27.19 21.8 20.98 21.05 20.83

Debtors 4.95 4.08 3.48 3.28 4.31 5.68 9.15 9.2 7.94 7.95

Interest Cover 292.8 502.6 28.59 34.94 49.7 39.38 63.19 206.2 149.6 27.03



Ratio 9 9 1

PBIDTM (%) 32.15 34.5 24.18 32.95 35.55 37.19 42.95 42.89 37.97 52.23

PBITM (%) 17.24 20.58 12.55 22.41 27.01 22.26 29.66 29.59 24.28 39.17

PBDTM (%) 32.09 34.46 23.74 32.31 35.01 36.63 42.48 42.74 37.8 50.78

CPM (%) 27.34 27.8 22.06 27.52 27.92 30.43 34.46 39.92 34.68 38.83

APATM (%) 12.43 13.89 10.43 16.99 19.38 15.49 21.17 26.63 20.99 25.78

ROCE (%) 7.03 8.97 6.33 11.76 17.36 12.28 15.99 15.97 12.41 18.1

RONW (%) 4.98 5.96 5.23 8.92 12.46 9.76 15.05 19.91 16.27 22.74

Current Ratio of MTNL is 1.35 for the year 2007-2008. This indicates that the company


continue operating.

Debt-to-Equity Ratio is 0 for the year 2007-2008, which means the company is totally

dependent on Equity.

Fixed Assets Turnover Ratio of MTNL is 0.3 for the year 2007-2008. This ratio is lower

than the industry ratio which indicates that assets are not being fairly utilized by the

company.

Inventory Turnover Ratio of MTNL is 24.73 for the year 2007-2008. So the stock

velocity of MTNL is 365/24.73 which is equal to 14.76 that is slightly higher than the

industry standard of 14.23. Therefore, MTNL takes 14 days to rotate its stock.

Debtor Turnover Ratio of MTNL is- 4.95 for the year 2007-2008. So the debtor velocity is 365/4.95 which comes out as 74 days i.e. MTNL takes on an average 74 days

to collect its money back from the debtors, which is again higher when compared to the

industry standards of 57 days.

Interest Cover Ratio of MTNL is 292.89 for the year 2007-2008 which means that

MTNL has 292.89 times more income to pay interest on their debts. This is highest

among all the players in the market.

Gross Profit Margin Ratio of MTNL is 32.15 for the year 2007-2008, means that

MTNL is making a profit before interest, depreciation and tax of 32.15%.

Net Profit Ratio of MTNL is 12.43 for the year 2007-2008, which is lower in

comparison with the industry ratio.



Return on Capital Employed Ratio of MTNL is 7.03 for the year 2007-2008, which



Return on Net Worth of MTNL is 4.98 for the year 2007-2008, which means it shows a


9.3.8 BPL Mobile Communications Ltd.

Table 9.8: Key Ratios of BPL Communications Ltd. (2006-2007)


7-Mar 5-Dec 5-

Mar

4-Mar 3-Mar 2-

Mar

1-

Mar

Mar-

00

Mar-

99

Mar-

98

Key Ratios

Debt-Equity

Ratio

13.52 20.2 34.12 0 38.86 10.06 4.75 3.23 2.51 2.73

Long Term

Debt-EquityRatio

13.47 19.79 32.93 0 36.69 10.06 4.75 3.23 2.51 2.73

Current Ratio 1.35 1.2 1.04 0.79 0.84 1.27 1.75 1.56 1.1 1.03

Turnover

Ratios

Fixed Assets 0.45 0.48 0.53 0.44 0.5 0.6 0.63 0.6 0.54 0.47

Inventory 1,458. 874.3 843.5 1,430. 1,709. 955.5 78.61 24.8 16.84 16.4



18 3 2 41 28 5

Debtors 9.32 8.93 11.32 10.28 8.26 4.8 2.92 3 4.17 4.36

Interest Cover

Ratio

1.67 0.53 1.69 0.89 0.79 0.31 -0.12 1.03 0.76 0.33

PBIDTM (%) 37.76 27.24 40.38 42.3 41.19 24.63 14.22 38.66 30.37 20.53

PBITM (%) 19.18 6.14 21.29 19.15 20.12 6.71 -3.01 30.04 21.53 10.59PBDTM (%) 26.28 15.64 27.81 20.75 15.63 2.77 -10.6

5

9.63 2.15 -11.4

6

CPM (%) 26.22 15.51 27.78 20.75 15.63 2.77 -10.6

5

9.63 2.15 -11.4

6

APATM (%) 7.64 -5.59 8.69 -2.41 -5.43 -15.1

5

-27.8

8

1.01 -6.7 -21.4

ROCE (%) 12.52 0 14.95 0 0 4.84 -1.89 17.63 12.43 5.28

RONW (%) 19.75 0 28.54 0 0 -107.

41

-87.0

3

2.13 -11.9 -35.9

9

Current Ratio for BPL is 1.35 for the year 2006-2007. This indicates that the company


continue operating.

Debt-to-Equity Ratio of BPL is 13.52 for the year 2006-2007, which means that

company raises its capital through debt instruments. It is more than the industry standards

and highest among the other players.

Fixed Assets Turnover Ratio of BPL is 0.45 for the year 2006-2007. This ratio is close

to the industry ratio which indicates that assets are being fairly utilized by the company

in order to generate sales.

Inventory Turnover Ratio of BPL is 1458.18 for the year 2006-2007. So the stock

velocity of BPL is 365/1458.18 which is equal to 0.25 that is lowest in the industry.

Therefore, BPL takes less than a day to rotate its stock.

Debtor Turnover Ratio of BPL is 9.32 for the year 2006-2007. So the debtor velocity is

365/9.32 which comes out as 39 days i.e. BPL takes on an average 39 days to collect its

money back from the debtors, which is again lower than as compared to the industry

standards of 57days.

Interest Cover Ratio of BPL is 1.67 for the year 2006-2007 which means that BPL has

1.67 times more income to pay interest on their debts.

Gross Profit Margin Ratio of BPL is 37.76 for the year 2006-2007, means that BPL is

making a profit before interest, depreciation and tax of 37.76%.



Net Profit Ratio of BPL is 7.64 for the year 2006-2007, which is lower in comparison

with the industry ratio, so this goes to show the efficiency of the operation of the

company.

Return on Capital Employed Ratio of BPL is 12.52 for the year 2006-2007, which



Return on Net Worth of BPL is 19.75 for the year 2006-2007, which means it shows a


9.3.9 HFCL Infotel Ltd.

Table 9.9: Key Ratios of HFCL Infotel Ltd.


8-

Mar

7

-

Mar

6

-

Mar

5

-

Mar

4

-

Mar

3-

Mar

2

-

Mar

1

-

Mar

M

ar-

00

M

ar-

99

Key Ratios

Debt-Equity Ratio 0 0 66.6

1

14.6

2

8.41 4.71 2.08 1.88 2.86 4.98

Long Term Debt-Equity

Ratio

0 0 65.5

3

14.4

8

0 0 1.92 1.79 2.74 4.23

Current Ratio 0.15 0.22 0.31 0.24 0.2 0.47 2.9 3.3 3.89 2.63

Turnover Ratios

Fixed Assets 0.2 0.24 0.27 0.25 0.2 0.18 0.18 0.27 0.43 0.44

Inventory 240.46

0 0 0 0 11.35 0.55 0.61 0.61 0.35

Debtors 6.15 6.82 8.32 9.52 12.9

7

29.08 2.87 1.96 5.23 32.8

5

Interest Cover Ratio -1.17 -0.8

2

-0.5

6

-0.4

9

-0.6

4

-0.74 -0.7

9

0.05 1.21 1.03

PBIDTM (%) 5.12 12.5

6

25.8 28.5

5

18.3

8

10.85 -1.5

7

39.2

5

75.0

8

83.6

8



PBITM (%) -30.6

7

-18.

92

-11.

55

-12.

04

-23.

19

-46.8

2

-44.

79

2.29 52.5

2

62.8

5

PBDTM (%) -21.2 -10.

46

5.25 3.79 -17.

71

-52.8

3

-58.

35

-9.2 31.5

4

22.8

8

CPM (%) -21.4

8

-10.

69

5.09 3.64 -17.

71

-54.6

5

-14.

71

-9.8

6

25.4

5

22.5

4

APATM (%) -57.27

-42.16

-32.26

-36.95

-59.27

-112.32

-57.93

-46.82

2.89 1.71

ROCE (%) 0 0 0 0 0 0 0 0 14.6

3

14.3

8

RONW (%) 0 0 0 0 0 0 0 0 3.11 2.34

Current Ratio of HFCL is 0.15 for the year 2007-2008. This means that the company is

having fewer assets to cover the liability and also the investors should be weary of the

fact that the company cannot pay off its short-term debt if necessary

Debt-to-Equity Ratio of HDCL is 0 for the year 2007-2008, which means the company,is totally dependent on Equity.

Fixed Assets Turnover Ratio of HFCL is 0.2 for the year 2007-2008. This ratio is lower

than the industry ratio which indicates that assets are not being fairly utilized by the

company.

Inventory Turnover Ratio of HFCL is 240.46 for the year 2007-2008. So the stock

velocity of HFCL is 365/240.46 which is equal to 1.52 that is lower than the industry

standard of. Therefore, HFCL takes less than 2 days to rotate its stock.

Debtor Turnover Ratio of HFCL is 6.15 for the year 2007-2008. So the debtor velocity

is 365/6.15 which comes out as 59 days i.e. HFCL takes on an average 59 days to collect

its money back from the debtors, which is again slightly higher than as compared to the

industry standards of 57 days

Interest Cover Ratio of HFCL is (1.17) for the year 2007-2008, which means that HFCL

does not have sufficient funds to pay interest on its debts.

Gross Profit Margin Ratio of HFCL is (30.67) for the year 2007-2008, means that

HFCL has a gross loss of (30.67%)

Net Profit Ratio of HFCL is (57.27) for the year 2007-2008, which means that the

company has incurred a net loss and is the only company to incur loss among the other

players.

Return on Capital Employed Ratio of HFCL is 0 for the year 2007-2008



2

APATM (%) 1.08 1.01 1.14 -9.8

4

3.64 1.12 4.55 7.83 4.2 1.97

ROCE (%) 11.4

2

5.97 4.05 -12.

96

1.41 1.93 8.95 11.3

1

7.47 10.5

8

RONW (%) 5.17 1.88 0.7 -11.

45

0.27 0.14 4.91 9.1 3 4.43

Current Ratio of Shyam Telecom is 1.17 for the year 2007-2008. This indicates that the

company can successfully pay off its debt while at the same time still have cash left over

to continue operating.

Debt-to-Equity Ratio of Shyam Telecom is 0.75 for the year 2007-2008, which means

that company is relying less on debt instruments while it is relying more on theshareholders capital. This also indicates the company’s assets are primarily supplied with

equity.

Fixed Assets Turnover Ratio of Shyam Telecom is 4.47 for the year 2007-2008. This

ratio is higher than the industry ratio and highest among other major players, which

indicates that assets are being utilized to its optimum capacity in order to generate sales.

Inventory Turnover Ratio of Shyam Telecom is 15.93 for the year 2007-2008. So the

stock velocity of Shyam Telecom is 365/15.93 which is equal to 22.91 which is higher

than the industry standard of 14.23. Therefore, Shyam Telecom takes close to 23 days torotate its stock.

Debtor Turnover Ratio of Shyam Telecom is 2.94 for the year 2007-2008. So the debtor

velocity is 365/2.94 which comes out as 124 days i.e. Shyam Telecom takes on an

average 124 days to collect its money back from the debtors, which is much higher than

as compared to the industry standards of 57 days.

Interest Cover Ratio of Shyam Telecom is 1.96 for the year 2007-2008, which means

that Shyam Telecom has 1.96 times more income to pay interest on their debts.

Gross Profit Margin Ratio of Shyam Telecom is 5.6 for the year 2007-2008, means that

Shyam Telecom is making a profit before interest, depreciation and tax of 5.6%.

Net Profit Ratio of Shyam Telecom is 1.08 for the year 2007-2008, which is lower in

comparison with the industry ratio.



Return on Capital Employed Ratio of Shyam Telecom is 11.42 for the year 2007-2008,

which indicate that the company is earning 11.42 times the profit on the total capital

employed that consists of Equity, Reserves & Surplus and long-term debt.

Return on Net Worth of Shyam Telecom is 5.17 for the year 2007-2008, which means it

shows a profit of 5.17 times per rupee invested by the investors.

9.4 INTER-COMPANY ANALYSIS

Inter-Company analysis have been done here on the basis of a few parameters of

evaluation for the top five companies on one hand and the bottom five companies on the

other.

9.4.1 Analysis of Top 5 companies

Table: 9.11 Inter-Company comparison of top 5 companies

(Rs in Crs)

Parameters Bharti Reliance Vodafone BSNL

IDEA Cellular

+SpiceEnterprise

Value 1,62,852.92 1,25,007.91 0 0 33906.72

Sales 25,761.11 14792.05 2733.76 32359.5 6719.99

Other

Income 359.91 520.58 115.68 5878.1 199.05

EPS 32.9 12.4 7.06 4.16 3.96

Market

Capitalizatio

n 156785.52 32683.76 0 0 18504.99

• Bharti Airtel stands the market leader in the cellular market with a market share

of 24.4% as on January, 2009.



• In terms of Enterprise value, Bharti Airtel has the highest enterprise value among

the top 5 players in the market. Reliance Communications stands next to Bharti

Airtel.

• When it comes to Sales BSNL has more sale than the market leader as it has a

wider presence in the rural market when compared with other companies.

• In terms of Other Income, BSNL has more income from other source than the

other companies.

• The market capitalization of Bharti Airtel is the highest in the telecom sector. The

market capitalization of BSNL and Vodafone is zero as they are not listed on the

BSE.

• The Earnings per Share of Bharti is the highest among all the telecom players in

the market. Earnings per Share serve as an indicator of a company’s profitability.

9.4.2 Analysis of Bottom 5 companies

Table: 9.12 Inter-Company comparison of bottom 5 companies

(Rs. in Crs)

Parameters Aircel MTNL BPL HFCL Shyam Telecom

Enterprise Value 0 2,713.29 0 1,709.44 76.23

Sales 280.72 4,722.52 729.09 248.88 223.05

Other Income 5.39 804.01 6.53 8.88

EPS 19.61 8.64 5.17 0 5.4

Market

Capitalization 0 6082.65 0 943.31 80.19

• Aircel has the highest market share of 4.6%, followed by MTNL as per Januray,

2009.



• In terms of Enterprise value, Shyam Telecom has the lowest enterprise value

among the bottom 5 players in the market. MTNL having the highest enterprise

value among the bottom 5 companies.

• When it comes to Sales MTNL has more sale than the other bottom 5 players

even though it has only 2 circles of operations i.e. Delhi and Mumbai.

• In terms of Other Income, MTNL has more income from other source than the

other companies.

•

The market capitalization of Shyam Telecom is among the lowest in the telecomsector. The market capitalization of Aircel and BPL is zero as they are not listed

on the BSE.

• The Earnings per Share of BPL is the lowest among the bottom 5 companies in

the telecom sector while that of HFCL being zero. Earnings per Share serve as an

indicator of a company’s profitability.

9.5 CONCLUSION

With government increasing the FDI gap to 74%, more foreign companies would be

entering the Indian market and there will be stiff competition among the Indian players

with the international players and hence the Indian players have to sustain growth and

make profits. Hence, the few companies that do not meet the industry standard ratios

need to work towards attaining the same.



Chapter 10

TRENDS AND

FORECAST

10.1 INTRODUCTION

The recent development in information technology and science has made a great

difference in telecom industry by increasing its efficiency and opening doors to major



developments of sector. CDMA, GSM, 2G&3G SPECTRUM, WIMAX etc are some of

the technology which have discussed. Both development and problem walks hand in

hand, with increasing development the industry is facing huge challenges and problems.

The industry will have to work more efficiently in order to overcome the problems. The

industry in total has got a great future and has a lot of untapped potential market.

10.2 TECHNOLOGIES

Technology is very much related to the way we conduct business. Today everything that

we talk about in business, like, the way we conduct business, the way we do things, the

way we deliver to the customers, etc. is using some form of technology. Therefore, role

of technology cannot be defined because it is a mindset and it happens over a period of

time.

The various technologies used by the Telecom Service Providers are as follows:

10.2.1 GSM (Global System for Mobile

Communication)

GSM, first introduced in 1991, is the leading digital cellular system. It uses narrowband

TDMA (Time Division Multiple Access). Eight simultaneous calls can occupy the same

radio frequency. GSM simplifies data transmission to allow laptop and palmtop

computers to be connected to GSM phones. It provides integrated voice mail, high-speed

data, fax, paging and Short Message Services (SMS) capabilities, as well as securecommunications. It offers the best voice quality of any current digital wireless standard.

Originally a European standard for digital mobile telephony, GSM has become the

world's most widely used mobile system and is now being used in more than 100

countries. GSM networks operate on the 900MHz, 1800MHz and 1900MHz wavebands

all over the world.

10.2.2 GPRS (General packet radio service)



GPRS is a packet oriented mobile data service available to users of the 2G cellular

communication systems global system for mobile communications (GSM), as well as in

the 3G systems. In the 2G systems, GPRS provides data rates of 56-114 kbit/s.

GPRS data transfer is typically charged per megabyte of traffic transferred, while data

communication via traditional circuit switching is billed per minute of connection time,

independent of whether the user actually is using the capacity or is in an idle state. GPRS

is a best-effort packet switched service, as opposed to circuit switching, where a certain

quality of service (QoS) is guaranteed during the connection for non-mobile users.

2G cellular systems combined with GPRS are often described as 2.5G, that is, a

technology between the second (2G) and third (3G) generations of mobile telephony. It

provides moderate speed data transfer, by using unused time division multiple access

(TDMA) channels in, for example, the GSM system. Originally there was some thought

to extend GPRS to cover other standards, but instead those networks are being convertedto use the GSM standard, so that GSM is the only kind of network where GPRS is in use.

GPRS is integrated into GSM Release 97 and newer releases. It was originally

standardized by European Telecommunications Standards Institute (ETSI), but now by

the 3rd Generation Partnership Project (3GPP).

10.2.3 EDGE (Enhanced Data rates for GSM

Evolution)

EDGE, Enhanced GPRS (EGPRS), or IMT Single Carrier (IMT-SC) is a backward-compatible digital mobile phone technology that allows improved data transmission

rates, as an extension on top of standard GSM. EDGE is considered a 3G radio

technology and is part of ITU's 3G definition,[1]. EDGE was deployed on GSM

networks beginning in 2003— initially by Cingular (now AT&T) in the United States.

EDGE is implemented as a bolt-on enhancement for 2G and 2.5G GSM and GPRS

networks, making it easier for existing GSM carriers to upgrade to it. EDGE is a superset

to GPRS and can function on any network with GPRS deployed on it, provided the

carrier implements the necessary upgrade.

EDGE requires no hardware or software changes to be made in GSM core networks.

EDGE compatible transceiver units must be installed and the base station subsystem

needs to be upgraded to support EDGE. If the operator already has this in place, which is

often the case today, the network can be upgraded to EDGE by activating an optional

software feature. Today EDGE is supported by all major chip vendors for both GSM and

WCDMA/HSPA.

http://en.wikipedia.org/wiki/Packet_oriented


http://en.wikipedia.org/wiki/Mobile_Data_Service

http://en.wikipedia.org/wiki/2G

http://en.wikipedia.org/wiki/Cellular_communication



http://en.wikipedia.org/wiki/Global_System_for_Mobile_Communications


http://en.wikipedia.org/wiki/Circuit_switching

http://en.wikipedia.org/wiki/Best-effort




http://en.wikipedia.org/wiki/Quality_of_service



http://en.wikipedia.org/wiki/2.5G



http://en.wikipedia.org/wiki/Time_division_multiple_access

http://en.wikipedia.org/w/index.php?title=GSM_Release_97&action=edit&redlink=1


http://en.wikipedia.org/wiki/European_Telecommunications_Standards_Institute


http://en.wikipedia.org/wiki/3rd_Generation_Partnership_Project

http://en.wikipedia.org/wiki/GPRS

http://en.wikipedia.org/wiki/IMT-2000

http://en.wikipedia.org/wiki/Backward-compatible


http://en.wikipedia.org/wiki/Mobile_phone

http://en.wikipedia.org/wiki/GSM

http://en.wikipedia.org/wiki/ITU




http://en.wikipedia.org/wiki/EDGE#cite_note-ref1-0


http://en.wikipedia.org/wiki/Cingular


http://en.wikipedia.org/wiki/United_States


http://en.wikipedia.org/wiki/Bolt-on_enhancement




http://en.wikipedia.org/wiki/General_Packet_Radio_Service




http://en.wikipedia.org/wiki/Mobile_Data_Service

















http://en.wikipedia.org/wiki/3rd_Generation_Partnership_Project

http://en.wikipedia.org/wiki/GPRS

http://en.wikipedia.org/wiki/IMT-2000



http://en.wikipedia.org/wiki/Mobile_phone







http://en.wikipedia.org/wiki/Bolt-on_enhancement




http://en.wikipedia.org/wiki/General_Packet_Radio_Service





10.2.4 CDMA (Code division multiple access)

CDMA is a channel access method utilized by various radio communication

technologies. It should not be confused with the mobile phone standards called cdmaOne and CDMA2000 (which are often referred to as simply "CDMA"), which use CDMA as

an underlying channel access method.

One of the basic concepts in data communication is the idea of allowing several

transmitters to send information simultaneously over a single communication channel.

This allows several users to share a bandwidth of frequencies. This concept is called

multiplexing. CDMA employs spread-spectrum technology and a special coding scheme

(where each transmitter is assigned a code) to allow multiple users to be multiplexed over

the same physical channel. By contrast, time division multiple access (TDMA) divides

access by time, while frequency-division multiple access (FDMA) divides it byfrequency. CDMA is a form of "spread-spectrum" signaling, since the modulated coded

signal has a much higher data bandwidth than the data being communicated.

10.2.5 HSDPA (High-Speed Downlink Packet Access)

HSDPA is a 3G (third generation) mobile telephony communications protocol in the

High-Speed Packet Access (HSPA) family, which allows networks based on Universal

Mobile Telecommunications System (UMTS) to have higher data transfer speeds and

capacity. Current HSDPA deployments support down-link speeds of 1.8, 3.6, 7.2 and 14.4Mbit/s. Further speed increases are available with HSPA+, which provides speeds of up

to 42 Mbit/s downlink

The High-Speed Downlink Shared Channel (HS-DSCH) lacks two basic features of other

W-CDMA channels—variable spreading factor and fast power control. Instead, it

delivers the improved downlink performance using adaptive modulation and coding

(AMC), fast packet scheduling at the base station, and fast retransmissions from the base

station, known as hybrid automatic repeat-request (HARQ).

10.2.6 WLL (Wireless Local Loop)

http://en.wikipedia.org/wiki/Channel_access_method

http://en.wikipedia.org/wiki/List_of_mobile_phone_standards


http://en.wikipedia.org/wiki/IS-95

http://en.wikipedia.org/wiki/CDMA2000



http://en.wikipedia.org/wiki/Bandwidth_(signal_processing)

http://en.wikipedia.org/wiki/Multiplexing

http://en.wikipedia.org/wiki/Spread-spectrum



http://en.wikipedia.org/wiki/Time

http://en.wikipedia.org/wiki/Frequency-division_multiple_access

http://en.wikipedia.org/wiki/Frequency

http://en.wikipedia.org/wiki/Spread_spectrum


http://en.wikipedia.org/wiki/Bandwidth_(computing)


http://en.wikipedia.org/wiki/Mobile_telephony


http://en.wikipedia.org/wiki/Communications_protocol

http://en.wikipedia.org/wiki/High-Speed_Packet_Access

http://en.wikipedia.org/wiki/Universal_Mobile_Telecommunications_System


http://en.wikipedia.org/wiki/Megabit

http://en.wikipedia.org/wiki/HSPA%2B

http://en.wikipedia.org/wiki/High-Speed_Downlink_Shared_Channel


http://en.wikipedia.org/wiki/W-CDMA


http://en.wikipedia.org/wiki/Adaptive_modulation_and_coding

http://en.wikipedia.org/wiki/Base_station

http://en.wikipedia.org/wiki/Hybrid_automatic_repeat-request



http://en.wikipedia.org/wiki/IS-95



http://en.wikipedia.org/wiki/Bandwidth_(signal_processing)

http://en.wikipedia.org/wiki/Multiplexing



http://en.wikipedia.org/wiki/Time

http://en.wikipedia.org/wiki/Frequency-division_multiple_access

http://en.wikipedia.org/wiki/Frequency


http://en.wikipedia.org/wiki/Bandwidth_(computing)



http://en.wikipedia.org/wiki/Communications_protocol

http://en.wikipedia.org/wiki/High-Speed_Packet_Access



http://en.wikipedia.org/wiki/Megabit

http://en.wikipedia.org/wiki/HSPA%2B



http://en.wikipedia.org/wiki/Adaptive_modulation_and_coding

http://en.wikipedia.org/wiki/Base_station

http://en.wikipedia.org/wiki/Hybrid_automatic_repeat-request



Wireless local loop (WLL), is a term for the use of a wireless communications link as the

"last mile / first mile" connection for delivering plain old telephone service (POTS)

and/or broadband Internet to telecommunications customers. Various types of WLL

systems and technologies exist.

WLL (Wireless in Local Loop) is a communication system that connects subscribers to

the public Switched Telephone Network (PSTN) using radio frequency signals as a

substitute for conventional wires for all or part of the connection between the subscriber

and the telephone exchange. It is useful for those subscribers who are located in pockets

where immediate telephone connections cannot be provided due to lack of underground

cable network but radio coverage is available.

Other terms for this type of access include Broadband Wireless Access (BWA), Radio In

The Loop (RITL), Fixed-Radio Access (FRA) and Fixed Wireless Access (FWA).

10.2.7 WiMax

WiMax (Worldwide Interoperability for Microwave Access) is a technology designed to

give people high speed access to the net over relatively long distances. A typical WiMax

system could theoretically give users in an area three to 10 kilometers wide a 40 Mbps

connection to the net.

This technology already deployed in some urban centres like Chennai (Madras) and

Mumbai (Bombay) would overcome the need to lay expensive cables or fibre optics to

villages.

At the moment there is a wired backbone throughout India but many villages are 30 to

40km away from the nearest connection. Wimax services can overcome that. One or two

WiMax base stations are enough to connect three or four villages.

The government telecoms operator BSNL is also in the process of rolling out some

WiMax services. But it is still expensive and at the moment is aimed squarely at large

businesses that need a quick-fix solution to broadband access.

10.2.8 3G TECHNOLOGIES

http://en.wikipedia.org/wiki/Last_mile

http://en.wikipedia.org/wiki/Plain_old_telephone_service

http://en.wikipedia.org/wiki/Broadband



http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Last_mile

http://en.wikipedia.org/wiki/Plain_old_telephone_service


http://en.wikipedia.org/wiki/Internet



3G or Third Generation technology is a convergence of various Second Generation

telecommunication systems. The technology is intended for SMARTPHONES -

multimedia cell phones. Video broadcasting and other e-commerce services such as,

stock transactions and e-learning will now be made possible much faster. It offers 3 Mbps

speed for downloading, which is very high as compared to that of the 2G technology. The

3G technology provides for internet surfing, downloading, e-mail attachment

downloading, audio-video conferencing, fax services and many other broadband

applications.

3G Technology was implemented in Japan for the first time in the world. Today the

technology is serving 25 countries over more than 60 networks having its existence in

Asia, Europe and USA. Video conferencing has been a major factor in the success of the

technology.

3G Technology in Indian Telecom Industry

From the time of telegraphs Indian telecom sector has witnessed an immense growth and

has diversified into various segments like, Fixed Line Telephony, mobile telephony,

GSM, CDMA, WLL etc. The telecom industry is growing at a fast pace introducing

newer technologies. Even the network operators and handset providers are also coming

up with newer value added services and advanced technology cell phones with

multimedia applications. Now it's time to welcome the much-awaited 3G Technology.

Bharat Sanchar Nigam Limited is all set to launch the technology by December 2007.

Not only the network providers but also the handset providers in India are waiting

eagerly for the launch of 3G to earn very high revenues from the value added services provided by the technology.

The technology is initially being launched on CDMA platform. The technology is being

tested over various platforms and cellular networks.

10.2.9 4G TECHNOLOGY

4G (also known as Beyond 3G), an abbreviation for Fourth-Generation, is a term used to

describe the next complete evolution in wireless communications. A 4G system will be



able to provide a comprehensive IP solution where voice, data and streamed multimedia

can be given to users on an "Anytime, Anywhere" basis, and at higher data rates than

previous generations.

As the second generation was a total replacement of the first generation networks and

handsets, and the third generation was a total replacement of second generation networks

and handsets, so too the fourth generation cannot be an incremental evolution of current

3G technologies, but rather the total replacement of the current 3G networks and

handsets. The international telecommunications regulatory and standardization bodies are

working for commercial deployment of 4G networks roughly in the 2012-2015 time

scale. At that point it is predicted that even with current evolutions of third generation 3G

networks, these will tend to be congested.

There is no formal definition for what 4G is; however, there are certain objectives that

are projected for 4G. These objectives include: that 4G will be a fully IP-based integratedsystem. 4G will be capable of providing between 100 Mbit/s and 1 Gbit/s speeds both

indoors and outdoors, with premium quality and high security.

Many companies have taken self-serving definitions and distortions about 4G to suggest

they have 4G already in existence today, such as several early trials and launches of

WiMAX. Other companies have made prototype systems calling those 4G. While it is

possible that some currently demonstrated technologies may become part of 4G, until the

4G standard or standards have been defined, it is impossible for any company currently

to provide with any certainty wireless solutions that could be called 4G cellular networks

that would conform to the eventual international standards for 4G. These confusingstatements around "existing" 4G have served to confuse investors and analysts about the

wireless industry.

10.2.10 HOW IS 3G DIFFERENT FROM 2G AND 4G

While 2G stands for second-generation wireless telephone technology, 1G networks used

are analog, 2G networks are digital and 3G (third-generation) technology is used to

enhance mobile phone standards.

3G helps to simultaneously transfer both voice data (a telephone call) and non-voice data

(such as downloading information, exchanging e-mail, and instant messaging. The

highlight of 3G is video telephony. 4G technology stands to be the future standard of

wireless devices.


http://en.wikipedia.org/wiki/Internet_protocol_suite



http://en.wikipedia.org/wiki/Security


http://en.wikipedia.org/wiki/WiMAX


http://en.wikipedia.org/wiki/Internet_protocol_suite



http://en.wikipedia.org/wiki/WiMAX



Currently, Japanese company NTT DoCoMo and Samsung are testing 4G

communication. 3G services will enable video broadcast and data-intensive services such

as stock transactions, e-learning and telemedicine through wireless communications.

All telecom operators are waiting to launch 3G in India to cash in on revenues by

providing high-end services to customers, which are voice data and video enabled. India

lags behind many Asian countries in introducing 3G services.

10.3 FUTURE PROJECTIONS

The Indian telecommunications industry is one of the fastest growing in the world and

India is projected to become the second largest telecom market globally by 2010.

India added 113.26 million new customers in 2008, the largest globally. In fact, in April

2008, India had already overtaken the US as the second largest wireless market. To putthis growth into perspective, the country’s cellular base witnessed close to 50 per cent

growth in 2008, with an average 9.5 million customers added every month. According to

the Telecom Regulatory Authority of India (TRAI), the total number of telephone

connections (mobile as well as fixed) had touched 385 million as of December 2008,

taking the telecom penetration to over 33 per cent. This means that one out of every three

Indians has a telephone connection, and telecom companies expect this pace of growth to

continue in 2009 as well. "We are extremely bullish that the growth will continue in

2009. This year, the number of additions will be in excess of 130 million," according to

T.V. Ramachandran , Director General, Cellular Operators Association of India (COAI),

an industry body that represents all Global System for Mobile communications (GSM)

players in India.

According to CRISIL Research estimates, eight infrastructure sectors, which include the

telecom sector, are expected to draw more than US$ 345.28 billion investment in India

by 2012.

With the rural India growth story unfolding, the telecom sector is likely to see

tremendous growth in India's rural and semi-urban areas in the years to come. By 2012,

India is likely to have 200 million rural telecom connections at a penetration rate of 25 per cent. And according to a report jointly released by Confederation of Indian Industry

(CII) and Ernst & Young, by 2012, rural users will account for over 60 per cent of the

total telecom subscriber base.

According to Business Monitor International, India is currently adding 8-10 million

mobile subscribers every month. It is estimated that by mid 2012, around half the



country's population will own a mobile phone. This would translate into 612 million

mobile subscribers, accounting for a tele-density of around 51 per cent by 2012.

It is projected that the industry will generate revenues worth US$ 43 billion in 2009-10.

10.3.1 Growth in Segments

According to a Frost & Sullivan industry analyst, by 2012, fixed line revenues are

expected to touch US$ 12.2 billion while mobile revenues will reach US$ 39.8 billion in

India. Fixed line capex is projected to be US$ 3.2 billion, and mobile capex is likely to

touch US$ 9.4 billion.

Further, according to a report by Gartner Inc., India is likely to remain the world's second

largest wireless market after China in terms of mobile connections. According to recent

data released by the COAI, Indian telecom operators added a total of 10.66 millionwireless subscribers in December 2008. Further, the total wireless subscriber base stood

at 346.89 million at the end of December 2008.

The overall cellular services revenue in India is projected to grow at a CAGR of 18 per

cent from 2008-2012 to exceed US$ 37 billion. Cellular market penetration will rise to

60.7 per cent from 19.8 per cent in 2007.

The Indian telecommunications industry is on a growth trajectory with the GSM

operators adding a record 9.3 million new subscribers in January 2009, taking the total

user base to 267.5 million, according to the data released by COAI. However, this figure

does not include the number of subscribers added by Reliance Telecom.

In WiMax, India is slated to become the largest WiMAX market in the Asia-Pacific by

2013. A recent study sees India's WiMAX subscriber base hitting 14 million by 2013 and

growing annually at nearly 130 per cent. And investments in WiMAX ventures are slated

to top US$ 500 million in India, according to a report by US-based research and

consulting firm, Strategy Analytics.

10.3.2 Manufacturing

India's telecom equipment manufacturing sector is set to become one of the largest

globally by 2010.



Mobile phone production is estimated to grow at a CAGR of 28.3 per cent from 2006 to

2011, totaling 107 million handsets by 2010. Revenues are estimated to grow at a CAGR

of 26.6 per cent from 2006 to 2011, touching US$ 13.6 billion.

10.3.3 Rural Telephony

Rural India had 76.65 million fixed and Wireless in Local Loop (WLL) connections and

551,064 Village Public Telephones (VPT) as on September 2008. Therefore, 92 per cent

of the villages in India have been covered by the VPTs. The target of 80 million rural

connections by 2010 is likely to be met during 2008 itself. Universal Service Obligation

(USO) subsidy support scheme is also being used for sharing wireless infrastructure in

rural areas with around 18,000 towers by 2010.

10.3.4 The Road Ahead

As on October 17, 2008, there were 350 million mobile and fixed line subscribers in

India, with about 8 million subscribers being added each month. The Union Minister for

Communications and Information Technology, Mr A Raja, has stated that the target for

the 11th Plan period (2007-12) is 600 million phone connections with an investment of

US$ 73 billion. Apart from the basic telephone service, there is an enormous potential for

various value-added services. In fact, the real potential for telecom service growth is still

lying untapped.

The Indian rural market is going to be the next big thing for wireless telecom providers.

With the tele-density in rural areas being still about 10 per cent against the national

average of about 21 per cent, there seems to be huge untapped potential for mobile phone

penetration in rural India. The government also plans an investment of US$ 2 billion,

during 2008 to 2009, for the development of around 100,000 community service centres

in rural India to provide broadband connectivity.

If past trend were any guide, it would be reasonable to hope that by 2020 India would

complete transition into digital switching and transmission, VoIP, broadband and 3G.

Though there would be always a small niche market in India, which would catch up withthe cutting age of the technology, consolidation and expansion of evolving technologies

across the length and the breadth of the country will follow with a lag.

Future vision of telecom is a vision of IT. Telecom will be the springboard of future

expansion of IT heralding in an information society. ICT will spread among the masses

and will spur innovation, entrepreneurship and growth. An expanding domestic market



will deepen the synergy between the domestic and the export market and strengthen

India’s presence in the high-value segment of the global trade and investment. ICT

benefits will spread among all, the rich and the poor, the young and the old, the men and

the women, the organized and the unorganized and the government and the governed.

10.4 CHALLENGES TO BE FACED

The challenge of the day is to search for new cost-effective ways to roll out telecom

services in rural areas. It means one has to choose proper and effective technology for

deployment and leverage on the use of available infrastructure to reduce cost and time of

role out of services. Those service providers who create the right business would emerge

winners and the rest would remain spectators.

Connectivity of networks and cost of bandwidth are also important to facilitate

broadband usage. Availability of local application and content is another area of concern.Most of the content available on website as of today is in English. The content in local

and regional language will increase interest of the local population in broadband

utilization.

The convergence of technologies and emergence of new applications is another thrilling

area. Lot of revolution is round the corner in broadcasting and entertainment industries.

The emergence of Internet protocol TV, mobile TV will all change the scenario in the

coming years.

Wireless technology is the future growth driver for which spectrum is the most important

input. The task of spectrum management in a multi user and multi usage scenario is moredaunting and crucial than ever before.

• It would be increasingly difficult for a new entrant to lure customers, as there is

nothing extra for a new player to offer.

• Return on investment or capital employed for a late entrant would be significantly

lower than the existing players.

• Expansion has to be done with a long sighted view for profitability. The ones who

would have large reserves and profits would cherish and leaving others to perish.

•

It will be an era of strong regional players as every strong player will consolidatehis position in the area he is strong by eating up smaller players till he attains a

point from which the further consolidation becomes economically unviable.

• Once the fixed line market is matured, mobile will crossover fixed line market. A

mobile revolution is in the offing in India.



In summary, if the last few years in telecom were exciting, it will be even more exciting

in the coming years.

Critical Factors for Future GrowthOpportunity in rural areas: When compared to Indian metros, there is a large gap in

tele-density; - 62 percent in the metros, nearly eight times higher than 8 percent in rural

areas. To capitalize on the growing population and disposable income in rural India,

telecom operators will have to explore and expand into ‘uncovered' geographies.

Re-examining high levies: The Indian telecom sector is one of the highest taxed sectors

in the developing world, through levies, which comprise service tax, revenue share,

spectrum cess, and value added tax.

Bringing down operators' capex: To expand the telecom services, there will be greater

investment needs in the future. Telco’s will have to engage on active and passive

infrastructure sharing.

Rational policy for spectrum allocation: The allocation of adequate spectrum is an

urgent requirement for new and existing operators. A clear roadmap for future spectrum

allocation has to be drawn, whether it is a 2G or a 3G platform. Operators need to be

cautious in ‘bidding' and should not overpay for spectrum as that could disturb project

economics.

Data revenues to provide ‘buffer': India's data revolution is going to be fuelled by 3G

and WiMAX. For the data revolution to reach villages, low-cost access devices,

vernacular content, and community initiatives such as e-governance need to be in place.

Enhancing skill sets: The sector will require specialist resources to support and sustain

growth over the next four to five years. And pressure on talent is expected to increase

with the deployment of 3G and WiMAX services. The private sector will need to reorient

its focus on talent development through training schools and facilitation programs that

cater to the needs of the telecom industry.

Impact of global economic downturn: The current financial crisis could have a low-to-

medium impact on the telecom sector in terms of rising costs of capital and reduction in

discretionary spending on the part of customers, among other determinants.



10.5 CONCLUSION

The technology improvement has helped the sector to perform better and has also

expanded the meaning of the term “telecommunication” from just audio messagetransformation to virtual presence of person. The sector clearly shows a great scope for

future.

BIBLIOGRAPHY



Information has been sourced from namely, books, newspapers, journals, industry

portals, government agencies, industry news and developments and through access to

database.

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14536611 indian telecom industry industry analytics

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